SAS ANNUAL AND SUSTAINABILITY REPORT FISCAL YEAR 2019 · the U.S. and Asia. Spurred by a...

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SAS ANNUAL AND SUSTAINABILITY REPORTFISCAL YEAR 2019

SAS ANNUAL AND SUSTAINABILITY REPORT FISCAL YEAR 2019

SAS reports financial and sustainability information in a joint report: SAS Annual and Sustainability Report Fiscal Year 2019 (FY 2019). SAS statutory annual report includes the report by the board of directors on pages 43-76 and the financial statements pages 77-122. The sustainability reporting has been prepared in accordance with the GRI Standards: Core option and com-prises pages 129-148. The sustainability reporting also includes the statutory sustainability report in accordance with the Swedish Annual Accounts Act. The auditor’s opinion on the annual report is included on pages 123-128 and the auditor’s limited assurance report on the sustainability report and statement regarding the statutory sustainability report is included on pages 149-150.

SAS, Scandinavia’s leading airline, carries 30 million passengers annually to, from and within Scandinavia. The airline connects three main hubs – Copenhagen, Oslo and Stockholm – with over 125 destinations in Europe, the U.S. and Asia. Spurred by a Scandinavian heritage and sustainable values, SAS aims to reduce its total CO2 emissions by 25 percent and use biofuel equivalent to the total fuel used for all SAS domestic flights, by 2030.

In addition to airline operations, SAS offers ground handling services, technical maintenance and air cargo services. SAS is a founding member of Star Alliance™ and together with partner airlines offers almost 19,000 daily flights to more than 1,300 destinations around the world.

SAS AB is the Parent Company of SAS and is listed on the stock exchanges in Stockholm (primary listing), Copenhagen and Oslo. The majority of its operations and assets are included in the SAS Consortium.

CONTENT

MARKET AND STRATEGY

FINANCIAL INSTRUMENTS

SUSTAINABILITY NOTES

OPERATIONS REPORT BY THE BOARD OF DIRECTORS

OTHERFINANCIAL STATEMENTS

SAS in brief 4

SASinfigures 5

Significanteventsduringtheyear 8

President’scomments 11

Theairlineoperatingenvironmentandtrends 15

Howwecreatevalue 17

Aviationmatters 18

Strategicprioritiesforachangingmarket 20

WinScandinavia’s frequenttravelers 21

Createanefficientandsustainableoperatingmodel 28

Securetherightcapabilities 33

SASasaninvestment 38

Financialinstrumentsandcapitalmarkets40

ReportbytheBoardofDirectors 44

Dividends,dispositionofearningsand outlook 62

CorporateGovernanceReport 63

BoardofDirectors 73

Groupmanagement 75

Consolidatedfinancialstatements 78

Overviewofnotes 83

Notestothe consolidatedfinancialstatements 84

ParentCompany financial statements 119

ParentCompanynotes 121

Signatures 122

Auditors’report 123

Sustainabilitygovernance 130

Environment 131

Employees 138

Responsiblebusiness 140

Aboutthisreport 143

GRIcontentIndex 146

Assurancereport 149

Operationalkeyfigures 152

Financialten-yearoverview 154

Definitions 156

Shareholderinformation 158

Destinations 159

2SAS ANNUAL AND SUSTAINABILITY REPORT FY 2019

OPERATIONSSAS IN BRIEF | SAS IN FIGURES

SIGNIFICANT EVENTS DURING THE YEAR | PRESIDENT’S COMMENTS

MARKET AND STRATEGY



REPORT BY THE BOARD OF DIRECTORS


OPERATIONS


AIRLINE OPERATIONS SAS is Scandinavia’s leading airline for smooth flights to, from and within Scandinavia. In FY 2019, a total of 30 million travelers flew with SAS. Airline operations are our primary business, carried out by SAS Scandinavia, SAS Ireland and our regional production partners.

CARGO SERVICESSAS Cargo is the leading provider of air freight solu-tions to, from and within Scandinavia, focusing on world class quality and customer care. SAS Cargo’s services are based on the cargo capacity of the SAS network, supplemented by dedicated truck operations.

GROUND HANDLING SERVICESSAS Ground Handling is the leading ground handling provider at airports in Copenhagen, Oslo, Stockholm, Malmö and Gothenburg. Our operations provide passenger, cargo and ramp services for SAS and other airlines.

TECHNICAL MAINTENANCESAS Maintenance Production offers technical maintenance of aircraft and engines at six airports in Scandinavia for SAS and other airlines.

EUROBONUSEuroBonus is Scandinavia’s largest travel-related loyalty program and enables closer relationships with our customers. EuroBonus has over 6 million members and more than 100 partners. The members represent a valuable customer database that sets us apart from the competition.

SCANDINAVIA’S LEADING AIRLINEWe are travelers – At SAS we believe that going places takes us places. Great ideas that lead to change come from those who travel and experience the world. We make this possible by providing smooth access to the world. With our determined work toward more sustaina-ble air travel, we also want to give future generations the opportunity to continue to experience the personal growth that traveling brings. We are travelers. For the future.

MILLION PASSENGERS

30

MILLON KG OF FREIGHT

111

THOUSAND DEPARTURES HANDLED

298

AIRCRAFT IN SERVICE

158

MILLION EUROBONUS MEMBERS

6.1OUR VISION:

Make life easier for Scandinavia’s frequent travelers.

MARKET AND STRATEGY





OPERATIONS

Significant events during the year

President’s comments

Operations

SAS in brief

SAS in figures FY 2019


MSEK

3,318Cash flow from

operating activities

-0.8%Available seat

kilometers

-2.4%Reduction of CO2

MSEK

786Earnings before tax and items affecting

comparability

75.2%Passenger load factor

SAS ended the year strongly and reported positive earnings before tax and items affecting comparability of MSEK 786. Although revenues increased during the year, higher fuel costs, unfavorable currency developments and the pilot unions' strike increased costs and offset the positive development. This resulted in income before tax and items affecting comparability to decline MSEK 1,350.

SAS IN FIGURES

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



REDUCTION OF CO2CUSTOMER SATISFACTION INDEX

72 (70) EMPLOYEE ENGAGEMENT INDEX

SICK LEAVE, %

5.7 (6.1)

59 (55)

-2.4%

SALES OF EUROBONUS POINTS

+4.5%

COMMON SHARE PERFORMANCE (FY 2019):

-26%CO2 emissions decreased by 2.4% compared to last year. Renewal of our aircraft fleet and continuous efficiency improvements have contributed to this reduction.

EUROBONUSEuroBonus is Scandinavia’s strong-est travel-related loyalty program. As of October 31, 2019, it had 6.1 million members.

FINANCIALINSTRUMENTSDuring 2019, SAS redeemed its preference shares for a total of SEK 1.1 billion and repaid a convertible bond of SEK 1.6 billion. In addition, a new hybrid bond amounting to SEK 1.5 billion was issued.

CUSTOMERSCustomer satisfaction increased during the year following improved punctuality, high regularity as well as initiatives to improve the customer experience.

SUSTAINABILITYWe are working hard to achieve our two 2030 goals: to reduce our total CO2 emissions by 25% compared to 2005, which exceeds the targets set by the industry organization IATA, and to use biofuel equivalent to our total domestic traffic.

EMPLOYEESThe average number of employees (FTEs) increased by 2.9% during the year to 10,445 full-time equivalents.

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



0

5

10

15

20

1412 13 14

8

4

FY14 FY15 FY16 FY17 FY18 FY190

1

2

3

4

5


3.0x 3.2x 3.1x2.7x

3.7x4.2x

0

10

20

30

40

50

40 4137

423837


OUTCOME

Financial preparedness decreased compared to last year but remained well above the target of 25%. The main drivers behind the decrease were lower liquid funds and higher fixed costs. The redemption of preference shares for SEK 1.1 billion in December 2018 and the repayment of convertible notes amounting to SEK 1.6 billion in April 2019, was to some extent offset by the issue of the SEK 1,5 billion perpetual hybrid bond in October. As of 31 October 2019, financial preparedness was 38%. Ten-year average of financial preparedness amounts to 36%.

FINANCIAL PREPAREDNESS, %ADJUSTED FINANCIAL NET DEBT/EBITDARROIC, 12-MONTH ROLLING, %

OUTCOME

The adjusted financial net debt/EBITDAR ratio increased during the fiscal year from 2.7x to 3.7x. The main driver behind the increase was an increase in capitalized leasing costs due to new Airbus aircraft being phased in, which raised adjusted financial net debt. Ten-year average of adjusted financial net debt/EBITDAR amounts to 4.1x.

OUTCOME

A negative earnings trend together with investments in new aircraft led to a decline in ROIC by 6 percentage points to 8% during FY 2019, below our financial target. ROIC ten-year average amounts to 8%.

FINANCIAL PREPAREDNESS Our target for financial preparedness is for cash, cash equivalents and available credit facilities to exceed 25% of annual fixed costs.

ADJUSTED FINANCIAL NET DEBT/EBITDAR We have a target for the adjusted financial net debt/EBITDAR ratio to be a multiple of less than three.

RETURN ON INVESTED CAPITAL (ROIC) Our target for ROIC is to exceed 12% measured over a business cycle, and is a prerequisite for SAS to create shareholder value. The target corresponds to the cap-ital market’s weighted average pre-tax cost of capital (WACC) and is also linked to our dividend policy, see page 49.

TARGETS

Target, since 2017 Target, since 2017 Target, since 2017

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



Our fleet was renewed through the launch of a new aircraft livery for a more contemporary look and feel.

NEW LIVERYOur fleet design was renewed through the launch of a new aircraft livery for a more contemporary look and feel.

ONGROUNDOpened 21 new fast tracks. Refreshed lounges in Copenhagen.

NEW AND IMPROVED DISRUPTION TOOLS To improve passenger and irregular-ity management two new Amadeus irregularity modules, together called Enhanced Disruption, were launched. Enhanced Disruption streamlines the rebooking process and makes it possible to rebook SAS passengers on other carriers in one simple transaction.

BIOFUEL Introduced the possibility for our customers to add biofuel to their tickets, in addition to the volumes SAS is already using.

NEW EUROBONUS FEATURES• Offsetting the CO2 emissions of

SAS tickets for our EuroBonus members

• Rewarding our most devoted customers with Lifetime Gold Membership

• Priority boarding for friends and family of Gold and Diamond members

• Ability to collect and share EuroBonus points among family and friends

WIFI ONBOARDBy the end of the fiscal year high-speed WiFi was installed on 60 of our aircraft.

PRODUCT AND OFFERING

SIGNIFICANT EVENTS DURING THE YEAR

SAS lounge in Copenhagen.

NEW ROUTES 26 new routes and nine new destinations during 2019.• Stockholm – Beirut, Catania,

Reykjavik, Marseille, Naples, Oulo, Salzburg

• Copenhagen – Catania, Florence, Marseille, Newquay, Bornholm, London Stansted, Szczecin

• Oslo – Antalya, Faro• Aarhus – Faro, Rome,

Manchester• Bergen – Gazipasa, Milan

Malpensa, Nice• Gothenburg – Faro• Stavanger – Gazipasa,

Milan Malpensa

SAS became the principal partner to the Scandinavian Olympic Committees and the Swedish Paralympic Committee for the Olympic Games in Tokyo 2020 and Beijing 2022.

“SAS became the principal partner to the Scandinavian Olympic Committees.”

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



NEW AIRCRAFTDuring the year, SAS has brought a further seven A320neo and one A330E aircraft into service. SAS has also announced the first flights with its new A350 and A321LR aircraft.

IMPROVED OPERA-TIONAL QUALITYRegularity remained at high levels and punctuality increased 2.6 percentage points compared to FY 2018. The significant improve-ments in operational performance were driven by several initiatives, including more seasonal staff in ground handling and technical maintenance, two spare aircraft, new disruption modules and optimized reallocation of network buffers.

NEW ORGANIZATIONA new organizational structure and Group management team was announced to accelerate efficiency efforts and drive accountability.

INCOME BEFORE TAXSAS reported an income beforetax and items affecting compara-bility amounting to MSEK 786,which is a weaker result comparedto last year mainly driven by higherfuel costs, a weak Swedish kronaand a seven-day pilot unions' strike.

BOND ISSUESAS issued a new SEK 1.5 billion hybrid bond.

CONVERTIBLE BOND SAS repaid its outstanding convertible bond at a nominal value of SEK 1.6 billion.

FLEET ORDERA decision was made to expand our aircraft fleet with three new A321LRs, which is a narrow-body aircraft specially configured to fly long distances. The first A321LR will enter into service in the second half of 2020.

NEW MEMBER OF THE BOARD Kay Kratky, born 1958, previously CEO of Austrian Airlines, was elected as new Board member of SAS AB.

EFFICIENCY The efficiency program realized financial savings of SEK 0.9 billion in FY 2019.

PREFERENCE SHARES SAS redeemed around 2.1 million preference shares for SEK 1.1 billion.

ORGANIZATIONAL

FINANCIAL

OPERATIONAL

The first flight with our new A350 aircraft is scheduled to take place at the end of January 2020.

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



CO2 EMISSIONS CO2 emissions decreased 2.4% year-on-year. The main driver behind the decrease was the introduction of seven brand new A320neo aircraft and one A330E aircraft – which have 15-18% lower fuel consumption compared with the aircraft they replaced. The labour conflict in April and May also contributed to reduced emissions.

RESEARCH ON HYBRID AND ELECTRIC AIRCRAFTSAS and Airbus signed a joint Memorandum of Understanding for hybrid and electric aircraft eco-system and infrastructure requirements research. SAS was also involved in various other pro-jects regarding electrical aircraft during 2019.

BIOFUELSAS sourced 455 tonnes of biofuel, an increase of 355 tonnes compared to 2018 and continued to actively promote the commerciali-zation of sustainable aviation fuel.

EUROBONUS MEMBER OFFSETTINGSAS began offsetting carbon emis-sions for all EuroBonus member travel with SAS, in February 2019. During FY 2019, 32% of passen-ger-related CO2 emissions were compensated.CERTIFICATION

SAS maintained its ISO 14001 certification.

SUSTAINABILITY

“From July 2019, SAS travelers have had the option to purchase biofuel in connection to their journey in order to further reduce the climate impact of their air travel.”

26 new routes and nine new destinations were introduced during 2019.

AWARDS AND RECOGNITIONSSAS received several awards and recognitions during the year. These include:• Best Domestic and

Best Airline in Europe at the Grand Travel Awards in Sweden.

• Ranked #1 in Heathrow's Fly Quiet and Green table in second and third quarter of 2019.

• Star Alliance named the Best Airline Alliance at the Skytrax World Airline Awards for the fourth year running, with the Alliance’s prestigious Los Angeles Lounge retaining the Best Airline Alliance Lounge Award for the fifth year in a row.

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



How would you summarize 2019? We were able to show that we continue to deliver on our strategy and made progress within several areas during the year. For example, our strong and improved customer offering led to an increase in unit revenues and passenger yield. In addition, the number of EuroBonus members increased 0.5 million to 6.1 million during the year, which contributed to a 5% increase in ancillary revenues.

On the other hand, we faced substantial challenges such as unfavorable currency movements, increased fuel costs and a labor conflict. All of which impacted SAS negatively and made our full-year earnings decline MSEK 1,350, which of course is unsatisfactory.

Why would you say aviation is important?It fulfils an extremely important function in society – connecting businesses, people and cultures in a time- efficient way. I believe that aviation is a foundation for value creation, job security, innovation and development.

The access to air travel means that Scandinavian companies can prosper. It gives them the possibility to stay in Scandinavia, instead of moving their business to other countries, and still have access to global customers. It also means that foreign businesses can locate their operations in Scandinavia.

Traveling also enriches our lives. It’s fantastic to discover new places, experience other cultures and to be exposed to new ideas.

However, for the future of aviation, we and the whole industry have a big responsibility to find a path toward a more sustainable future. This is an existential issue and we at SAS want to lead the way. Therefore, we work hard to reduce our climate impact and emissions, and are making a substantial investment in the most fuel-efficient aircraft fleet on the market.

Despite a challenging year, SAS delivered a positive full-year result thanks to an attractive customer offering, a robust operational performance and enhanced revenue generation.

Rickard Gustafson, President and CEO.

POSITIVE REVENUE DEVELOPMENT IN A CHALLENGING YEAR

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



How is the work with sustainability progressing?We have further accelerated our sustainability efforts throughout the year. We phased in seven new Airbus 320neo aircraft during 2019 and we reached a 34% completion rate for our fleet renewal program at the end of the fiscal year. The new and technically advanced Airbus aircraft we are phasing in, reduce carbon emissions by 15–30% compared to aircraft of the previous generation that are being replaced.

We also made progress in reducing the weight of our aircraft and thereby fuel consumption. For exam-ple, by further developing our meal pre-ordering services, renewing cabin interiors with light-weight materials and switching to light-weight containers in our Cargo operations.

We continued our efforts to increase the supply and usage of Sustainable Aviation Fuel (SAF), such as bio-fuel. Altogether in FY19, we sourced 455 tonnes and also made it easier for our customers to add biofuel to their SAS ticket, in addition to the volumes SAS is already using. However, for SAS to receive the quantities needed and at a competitive price, it will require a large-scale production of SAF, preferably in Scandinavia to reduce transportation related CO2 emissions.

SAS is also taking part in a number of research and development projects – for example with Airbus – regarding the next generation of aircraft with lower or even zero emissions. In the interim before such aircraft are available, sustainable aviation fuel such as biofuel is key to ensure a step-change reduction in emissions from the airline industry. Already today, it is technically possible to include up to 50% sustainable aviation fuel in our aircraft.

We have set an ambitious target for 2030 to reduce our emissions 25% compared to the base year 2005, and in 2019 we continued to make progress, reducing emissions 2.4%.

For the emissions that we can’t eliminate with current technology, we continue to carbon offset for the SAS tickets of EuroBonus members, youth passengers and staff. During the year, we compensated for 32% of our total passenger-related CO2 emissions.

What improvements to the customer offering would you like to highlight?During the year, we launched 25 new routes and nine new destinations to adapt our network to customer demand. New aircraft were phased in with new features to make traveling more comfortable and sustainable. We have finalized the upgrade of our cabin interior, and our customers could enjoy high-speed WiFi access on 60 of our short-haul aircraft.

We further improved our ground service offering. 21 new fast tracks were opened, and we continued our work to make existing services faster and more efficient. We also continued to equip our staff with tablets to more quickly and directly assist our customers.

We added more features to our EuroBonus loyalty program and introduced Lifetime Gold Membership to make it even more attractive for our most loyal customers. We also added priority boarding for friends and family of Gold and Diamond members and the abil-ity to collect and share points among family and friends.

Our determined work toward more sustainable air travel also attracted customer attention and an increased willingness to choose SAS. From the beginning of February, we also introduced carbon offsetting on all SAS tickets booked with an attached EuroBonus number. Last but not least, we increased the punctuality of our operations by 2.6 percentage points. Altogether our efforts were reflected in the SAS Customer Satisfaction Index, which increased by 2 points to 72.

“Our determined work toward more sustainable air

travel also attracted customer attention and an increased

willingness to choose SAS.”

Aviation is a foundation for value creation, job security, innovation and development.

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



that proper planning, digital investments and engaged employees made a significant difference for our customers during the strike.

In terms of increased efficiency, we delivered on our target of SEK 0.9 billion set out for the year. The remaining SEK 0.6 billion of the total SEK 3 billion will be delivered in the next fiscal year, according to plan.

What do you see when looking ahead?The economic outlook continues to be uncertain and a slowdown in key economies would impact customer demand negatively. The continued weakness of the Swedish and Norwegian krona against the US dollar and the Euro also remains a challenge. When looking ahead, we foresee that capacity growth will be lower than what we have seen in recent years, at the same time as customer demand is also expected to slow down. We are also mindful of the increased customer awareness of aviation's impact on the environment. The industry has faced a number of unfortunate bankruptcies in recent years. A clear signal that carriers must continue their efforts to further improve customer offerings and efficiencies.

To meet these challenges, we at SAS must continue our transformation. We have begun working with the next

How would you describe the operations during the year?We have delivered on several initiatives aimed at improving operations throughout the year. We optimized network redundancies and increased the availability of spare aircraft. We also recruited more staff to our operations on the ground and in techni-cal maintenance. I’m pleased to see that the invest-ments made were reflected in an improved opera-tional robustness where punctuality increased, and regularity remained at high levels.

To enable easier and faster rebooking in the event of traffic disturbances, we introduced new digital tools in 2019 to more effectively assist affected passengers and thereby also reduce costs for refunds and claims.

During the seven-day pilot conflict, all of our invest-ments and initiatives were put to test during an extreme level of traffic disruptions. Although I would have preferred to avoid the disruption, I’m pleased to see

phase of initiatives to secure a long-term sustainable and profitable business.

The investment in a single-type fleet continues and will bring significant benefits to our operations, for example with reduced stand-by levels, training and maintenance costs. The new fleet also lowers fuel consumption and thereby CO2 emissions.

We accelerate our Lean and digitalization efforts, which will increase the automation of administrative tasks and reduce overhead costs. We will also benefit from improved asset and crew utilization with new system and planning processes that will help us to further enhance our strong operational robustness and reduce costs.

Our operating model also needs to be further devel-oped. Rightsizing the fleet is crucial from a profitability perspective, but it is also an important part of our journey toward a more sustainable future. Our older 120–150 seat aircraft serving the mid-size segment need to be replaced in the next few years. But we have to make sure that the benefits of single-fleet operations on all platforms remain intact and that all our produc-tion units have the prerequisites to compete effectively.

The plan for the coming years comes with a substan-tial long-term efficiency improvement of SEK 1.5–2.0 billion by 2023. Some of our initiatives will benefit us in 2020, while others lay the foundation for increased efficiency in the years to come.

To conclude, I would like to convey my sincerest thanks to all the employees, customers, investors and partners who have been with us during the year and look forward to an exciting 2020!The new fleet lowers fuel consumption and thereby CO2 emissions.

“The investment in a single-type fleet continues

and will bring significant benefits to our operations.”

MARKET AND STRATEGY





OPERATIONS



Operations

SAS in brief



MARKET AND STRATEGYTHE AIRLINE OPERATING ENVIRONMENT AND TRENDS | HOW WE CREATE VALUE

AVIATION MATTERS | STRATEGIC PRIORITIES FOR A CHANGING MARKETWIN SCANDINAVIA’S FREQUENT TRAVELERS

CREATE AN EFFICIENT AND SUSTAINABLE OPERATING MODELSECURE THE RIGHT CAPABILITIES





MARKET AND STRATEGY


THE AIRLINE OPERATING ENVIRONMENT AND INDUSTRY TRENDSApproximately 100 million journeys were made with air travel to, from and within Scandinavia in fiscal year 2019. This means Scandinavians are among the world’s most frequent travelers.

EXTERNAL CHALLENGES

The industry’s dependence on jet fuel results in sensitivity to the global oil price development. There is also an increased awareness of aviation's environmental impact from customers, employees and society as a whole. Airlines are exposed to multiple sustainability regulations such as air travel tax and emission trading on both a local and international level.

The global reach of the industry means it is also sensitive to changes in economic cycles and uncertainties surrounding global trade, as these could quickly affect demand for air travel and freight. Examples of factors that could have an impact are Brexit and the continued US-China trade dispute.

Airlines are also highly dependent on their supporting infrastructure, such as airports and air traffic control.

As aviation capacity continues to grow, airspace and airport congestion is expected to increase, which will restrict the ability of airlines to optimize scheduling and route networks.

-1.2%

DECREASE IN THE NUMBER OF PASSENGERS FROM SCANDINAVIAN AIRPORTS

+1.0%

INCREASE IN THE NUMBER OF SEATS OFFERED

DEVELOPMENT DURING THE YEAR

The number of passengers from Scandinavian airports decreased and the seats offered increased during the fiscal year.

INDUSTRY OVERVIEW

Globally, around 4 billion passengers are flown each year with commercial airlines, of which just over one billion are made in Europe. The industry has been characterized by higher-than-GDP growth, but also by intense compe-tition and price pressure. It is also capital- and labor-intensive, with large fixed costs.

This combined with the fact that a large proportion of sales occur close to departures, means that airlines are sensitive to global eco-nomic development and are rapidly affected by changes in demand. In contrast to the North American market where a consolidation of airlines has taken place over recent years, the European market remains fragmented, which adds to the challenges European airlines must manage.

AIR TRAVEL IN SCANDINAVIA

The Scandinavian air travel market is substantial in relation to its population, when compared with the rest of Europe. This is due to Scandinavia’s economic prosperity, internationally successful companies and its geography.

The region is characterized by relatively long distances between reasonably small towns, with many small business destinations and airports that need to be served. A highly mountainous topography where the land masses are largely surrounded by sea, makes other forms of transport time-consuming and inefficient. At the same time, Scandinavia’s small population means that there are a limited number of routes that can be oper-ated with multiple daily departures with larger aircraft. To be able to offer a broad network and high frequencies, an airline requires a flexible operating model consisting of aircraft of various sizes, optimized for different types of traffic flows.

The market is also characterized by a high seasonality, where demand in July is approximately 50% higher than market demand in January.

Customers increasingly demand that airlines take environmental and social responsibility.





MARKET AND STRATEGY

Market and Strategy

The airline operating environment and trends

How we create value

Aviation matters

Win Scandinavia’s frequent travelers

Create an efficient and sustainable operating model

Secure the right capabilities

Strategic priorities for a changing market


RESPONDING TO AIRLINE INDUSTRY TRENDS

TREND IMPACT ON THE AIRLINE INDUSTRY SAS' RESPONSE

Globalization, economic growth and increased prosperity

• Demand for air travel • Support regional economic development with route network

• Greater flexibility in the production model to meet demand

• Stable operational robustness

Increased leisure travel • Requires different route network, seasonal adjustments and an adapted product offering

• New destinations

• Improved seasonality adaptation

• Increased product differentiation

Changes in the competitive landscape

• New operating models with flexible employment in lower-cost countries

• Price pressure

• SAS Ireland and external regional production partners

• Increased focus on productivity

• Efficiency program

Technical development and digitalization

• Increased productivity and new services

• Customers demand instant information access and self-service options

• Improved distribution possibilities

• New fuel-efficient aircraft with less environmental impact

• New digital products and services, e.g. high-speed WiFi onboard

• Future distribution capabilities project

Increased environmental and social responsibility awareness

• Customers increasingly demand that airlines take environmental and social responsibility

• Ambitious sustainability targets

• Renewal of fleet and focus on reduced emissions

• Use of biofuel and CO2 offsetting

• Weight and waste reduction





MARKET AND STRATEGY

Market and Strategy


How we create value

Aviation matters






8ROIC, %

59Employee

engagement index

B+/B11

SAS' credit rating

10.2SEKbn in contribution for infrastrucure and

fiscal taxes

2.4 %Decrease in total

CO2 emissions

72Customer

Satisfaction Index (CSI)

OUTPUTWHAT WE CREATEOUR BUSINESS MODELOUR RESOURCES

SOCIETAL AND RELATION SHIP CAPITAL

30 million passengers and relation ships with customers, suppliers, partners and decision- makers, as well as our extensive community with 165 million web-site hits annually and 1.2 million followers on Facebook.

INTANGIBLE CAPITAL

Over six million members within the EuroBonus program, 800 daily slot pairs and a strong SAS brand.

HUMAN CAPITAL

10,445 FTEs, with extensive experience and highly developed skills of which 36% are flight crew, 40 % ground personnel, 10% technical staff and 14 % administrative personnel.

MANUFACTURED CAPITAL

158 aircraft with a market value of about SEK 36 billion, and a number of properties, vehicles, machines, tools and equipment, such as lounges and self-service terminals.

FINANCIAL CAPITAL

SEK 29 billion in capital invested by shareholders, lenders and lessors.

NATURAL CAPITAL

1,337 Ktonnes of jet fuel con-sumed and 455 tonnes biofuel sourced for flight operations, as well as other raw materials and energy consumption.

WHAT WE DO

SAS makes life easier for people who travel frequently to, from, and within Scandinavia by offering smooth flights for business and leisure travel. We offer the most destinations and departures within Scandinavia, and reward customer loyalty through our EuroBonus program.

HOW WE DO IT

Our travel and freight services are built on SAS Scandinavia, supplemented by SAS Ireland flying larger traffic flows with a uniform aircraft fleet, and smaller regional traffic flows flown via regional partners. Flight operations are supported by ground handling services, technical maintenance and a sales organization.

As air travel plays an important role in society, connecting communities, cultures and people in a time-efficient way, SAS works continuously to reduce the climate and environmental impacts of its operations through innovation and investments in new technology.

30 MILLION JOURNEYS

299 ROUTES

111 MILLION KG OF TRANS PORTED GOODS

127 DESTINATIONS

AND

1,300 VIA STAR ALLIANCE

800 DAILY DEPARTURES

FOR SHAREHOLDERS

• Net income for the year of MSEK 621

• Common share market capitalization of SEK 5.8 billion

FOR CUSTOMERS

• Smooth & attractively priced travel that makes life simpler

• New experiences, relationships and personal development

FOR EMPLOYEES

• Job opportunities• Personal & professional

development• Salary and benefits

FOR FINANCIAL BACKERS AND SUPPLIERS

• Supplier payments of about SEK 35.4 billion

• Interest expense of MSEK 485• Lease expense for aircraft of

MSEK 3,561

FOR SOCIETY

• Infrastructure that enables trade, new companies, import/export, tourism, cultural exchange and regional development

• Scandinavian community• Tax income & job opportunities

FOR ENVIRONMENT

• Production with more fuel- efficient aircraft resulting in lower climate impact and reduced noise

1 Credit rating Standard & Poors B+, Moody's B1.

HOW WE CREATE VALUE





MARKET AND STRATEGY

Market and Strategy


How we create value

Aviation matters






AVIATION MATTERSAviation has an important function in society and SAS intends to be at the forefront of bridging the gap to sustainable aviation.

We believe sustainable development means continuous improvements in all relevant areas of sustainability. The transition to more sustainable air travel is an existential topic for the aviation industry and SAS.

SAS creates 20,000 jobs in Scandinavia, including 10,000 full-time employees, jobs at subcontractors with catering, technical maintenance, fuel as well as jobs within tourism and the hospitality industry.* Furthermore avia-tion fulfills an important function in society as it connects businesses and people in a time efficient way. Creating value and facilitating the success of Scandinavian compa-nies in a region highly dependent on global trade.

We strive to consider the sustainability aspects in everything we do at SAS. Our ambition is to promote maximum societal benefit through our products and services while minimizing the climate and environ mental impacts. This involves:• creating a culture among employees with a

commitment to environmental work;• using documented sustainability assessments

as a basis for decisions;• actively putting greater sustainability demands

on our suppliers;• engaging in strategic sustainability dialog with

relevant stakeholders; and• promoting tomorrow’s solutions through

cooperation with different stakeholders.

“The transition to more sustainable air travel is an existential topic for the aviation industry and SAS.”

A ZERO-EMISSION AIRLINE INDUSTRY BY 2050SAS fully supports the International Air Transport Association (IATA) ambition for commercial aviation without material climate impact by 2050. The IATA and the airline industry have agreed to:• Improve fuel efficiency by

an average of 1.5 % annually from 2009 to 2020;

• Achieve carbon-neutral growth from 2020; and

• Reduce greenhouse CO2 emissions by 50% by 2050, compared with 2005.

Source: www.enviro.aero

SAS is committed to reach and exceed the IATA goals and has reduced its CO2 emissions by approximately 5.3% since 2005.

* From a study from Copenhagen Economics, on behalf of SAS, where they have analyzed SAS's contribution to the economy in Scandinavia





MARKET AND STRATEGY

Market and Strategy


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Aviation matters






Our most relevant sustainable development goals As a leading airline in terms of reducing our climate impact, promoting resource efficiency and creating an attractive workplace, four of the SDGs are closely aligned to our sustainability agenda.

With our commitment, documented activities and results, we strive to take care of our customers, employees, the environment and society at large. This approach enables us to minimize sustainability- related risks and draw on potential opportunities – to avoid unnecessary costs, realize financial savings and differentiate ourselves from the competition.

SAS has a well-defined process for continuously reviewing which topics are the most relevant and material in terms of sustainability. The process involves engaging with internal and external stakeholders and is based on international guidelines such as the GRI, the UN Global Compact, the UN Sustainable Development Goals, global trends, the media, stakeholder dialogue, and our own risk and opportunities assessments.

Based on our materiality analysis conducted in 2019, the following topics remain the most material for SAS and its stakeholders:

Environment• Emissions• Waste• Noise

Employees• Diversity and equality• Work conditions

Responsible business• Business ethics and anti-corruption• Sustainability in the supply chain

MATERIALITY AND OUR SUSTAINABILITY FOCUS AREASThe materiality analysis also identifies ‘sustainability communication’ and ‘customer satisfaction’ as areas of significant importance to SAS and its stakeholders. We actively communicate on sustainability issues in a transparent manner with our stakeholders, including the publication of our Annual and Sustainability Report. Customer satisfaction is an essential part of our prod-uct responsibility.

OUR MOST MATERIAL TOPIC – GREENHOUSE GAS EMISSIONSBased on our materiality analysis, our most important environmental impact is emissions from the consump-tion of fossil fuels. Aircraft operations account for over 99%¹ of our greenhouse gas emissions. We therefore focus on promoting aircraft efficiency and the transition to renewable jet fuels in our ISO 14001 environmental management system.

Our focus areas to reduce emissions:• Increase fuel efficiency• Biofuel & emerging technologies• Sustainable products & services

UN SUSTAINABLE DEVELOPMENT GOALSThe Sustainable Development Goals (SDGs), or Global Goals for Sustainable Development, are a collection of 17 global goals set by the United Nations General Assembly in 2015. They involve meeting a broad range of global development targets by 2030. The goals encourage businesses to consider how they can best contribute to overcoming global challenges related to economic, social and environmental sustainability.

SDG 8 – DECENT WORK AND ECONOMIC GROWTH

Goal 8 promotes sustained, inclusive and sustainable economic growth, full and productive employ-ment and decent work for all. SAS provides fair working condi-tions for all its employees, partners and suppliers.

SDG 5 – GENDER EQUALITY

Goal 5 promotes gender equality and the empowerment of all women and girls. SAS contributes toward this goal by encouraging gender equality and diversity through its recruitment policy and annual People Review.

SDG 13 – CLIMATE ACTION

Goal 13 calls for urgent action to combat climate change. SAS works proactively to reduce its green-house gas emissions by focusing on reducing emissions from its aircraft operations.

SDG 12 – RESPONSIBLE CON-SUMPTION AND PRODUCTION

Goal 12 promotes sustainable con-sumption and production patterns. SAS works continuously with its product development and efficiency improvements in order to reduce its climate and environmental impacts.

1 This figure is based on our flight operations including regional production partners. It does not cover other external services, even though we work to better understand these emissions and cooperate with our partners to reduce emissions.





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SAS focuses on people who travel frequently to, from and within Scandinavia. We work with our three strategic priorities to achieve a sustainable and profitable business.

WIN SCANDINAVIA’S FREQUENT TRAVELERS

• Improve the customer offering throughout the value chain – Discover & Book – Pre-travel – Travel – After travel

• Further develop sustainable products & services

CREATE AN EFFICIENT AND SUSTAINABLE OPERATING MODEL

• Efforts to increase opera-tional and environmental efficiency – Fuel efficient aircraft

– Increase biofuel use – Toward hybrid & fully

electric aircraft – Continued efforts in

digitalization – Further progress on

operational efficiency

SECURE THE RIGHT CAPABILITIES

• Adapting to an industry in transition– Excel in leadership– Develop our competence– Make SAS an attractive

workplace

STRATEGIC PRIORITIES FOR A CHANGING MARKET





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Market and Strategy


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WIN SCANDINAVIA’S FREQUENT TRAVELERSBy focusing on frequent travelers that take five or more roundtrip flights each year, we develop our product and our network – which benefits all our customers. We work to enhance the experience for our customer in each step of the journey. An important area is to provide more sustainable products and services.

KEY PROGRESS IN 2019

• Network further adopted to customer demand – 9 new destinations – 25 new routes• Improved operational quality – New digital tools for improved traffic

disruption management – Improved punctuality with 2.6 percentage points• Enhanced customer experience – 21 new fast tracks opened – High-speed WiFi now installed on 60 aircraft – Lifetime EuroBonus Gold introduced for our most

loyal customers• Further developed sustainable products and services – Carbon offsetting for all EuroBonus members on

SAS flights – Option to purchase biofuel – New intelligent catering loading system

UN Sustainable Development Goal 12 promotes sustainable consumption and production patterns. SAS works continuously with its product development and efficiency improvements in order to reduce the climate and environmental impacts.

“We continually improve our offering to ensure it meets and even exceeds

customer expectations – such as by providing more sustainable

products and services.”

72 (70)Customer satisfaction

Index

30million passengers

6.1 (5.6)million Eurobonus

members





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DISCOVER & BOOKThrough personalized communication and a seamless booking experience, we help customers to research, evaluate, book and plan their trip. Our offering includes an attractive network, timetable and pricing as well as opportunities to add travel extras, such as biofuel to cover their flight.

Initiatives in FY 2019

Seasonal route optimization – We continued our work to optimize our route network throughout the year to better meet fluctuations in customer demand. Some 25 new seasonal summer routes were introduced during the year, including five brand new destinations: Florence, Marseille, Szczecin, Cornwall and Oulu. The adaptation to seasonal demand was successful and we were able to report new records for passenger numbers in both June and July.

Further developed service concept to suit everyone – To meet frequent traveler expectations, we have further developed the popular SAS Go and SAS Plus service concepts. The service concepts provide customers with an increased range of options, designed to meet their specific needs.

Comprehensive network – SAS offers the most comprehensive network to, from and within Scandinavia with frequent departures and smooth reliable journeys. During the year we increased our market share at our primary air ports in Scandinavia.

ENHANCED GLOBAL NETWORK THROUGH STAR ALLIANCEDuring 2019, the Star Alliance network could offer more than 19,000 daily departures, a combined fleet of over 5,000 air-craft and 1,294 destinations in 192 countries worldwide, making it the largest global airline alliance. SAS is a co-founder of Star Alliance, which offers our travelers advantages such as a global network, access to lounges and Fast Track, and the ability to more easily reach their destinations when affected by flight irregularities by rebooking on the next available Star Alliance flight. Members can also earn and more easily use points with member companies.

IMPROVE THE CUSTOMER OFFERING THROUGHOUT THE TRAVEL CHAIN





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PRE-TRAVELWe provide customers with relevant travel information before their trip regarding transport, check-in, gate and baggage. We also offer opportunities to pre-order meals and add travel extras as well as provide benefits and inspiration at their destination.


Seamless airport experiences for frequent travelers – 21 new fast tracks opened in 2019 across Europe and SAS now offers fast track everywhere in Europe where they are available.

Improved lounge experience – SAS Lounges at Copenhagen Airport were refurbished with new, classical Scandinavian furnishings, more seating and upgraded restrooms. Passengers in the SAS Gold Lounge can now enjoy a barista-brewed coffee, as well as light therapy in the ‘Daylight Booster Zone’. Digital magazines in the SAS app replaced printed versions in all our own lounges and thus reduced the environmental impact.

New service point at Copenhagen airport – The new SAS Service Point in terminal 3 opened, with computers for booking tickets and check-in, charging points for mobile devices, and SAS staff at hand to help if problems arise on a customer’s journey.

Fine tuning of our digital platforms – During the year, customer satis-faction in our digital channels increased significantly. This is thanks to a number of improvements as well as new products added to SAS digital channels, for example improved tools for our corporate customers through SAS for Business, digital gift cards, and the possibility to book luggage, meals and lounge access directly in our app.

Improved tools for managing traffic disruption – Two tools were intro-duced during the year to improve passenger and irregularity management. The tools enable rebooking of passengers in single transactions compared to the required manual rebooking processes carried out previously.

Passenger option to reduce carbon footprint – In addition to the various SAS initiatives to reduce CO2 emissions, we introduced the opportunity for our travelers to reduce their climate impact. From July 2019, SAS travelers have had the option to purchase biofuel to cover their journey, in addition to the biofuel SAS already buys, in order to further reduce the climate impact of their air travel.





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TRAVELBy providing relevant information during travel – from boarding to arriving at destination – we promote smooth and superior in-flight and travel experiences for our customers.


High-speed WiFi onboard – The ongoing investment in digitalization onboard is an important part of enhancing our customer offering. We now offer high-speed WiFi onboard 60 short-haul aircraft and can provide our customers with real-time travel information, and opportunities to work and stream video/audio content to make their journeys smoother.

Improved operational quality – Several initiatives during the year led to a significant improvement of punctuality which increased 2.6 percentage points and regularity remained at high levels.

New aircraft – We added brand-new aircraft from Airbus to our fleet during the fiscal year: seven A320neo aircraft and one A330 aircraft. These modern aircraft are more fuel efficient and have 15–18% lower emissions than the aircraft they replaced. In September 2019, our fleet was also renewed through the launch of new aircraft livery for a more contemporary look and feel.

New cabin interior – We upgraded existing aircraft with new light-weight cabin interiors to reduce weight and further reduce CO2 emissions.

In-flight dining – We further refined our in-flight menu during the year with new locally and seasonally produced dishes and plant-based alternatives to meet the demands of our Nordic consumers. We made our award-winning cube even more sustainable by removing all fossil-based plastic to make it fully recyclable.

Pre-ordered meals – The option to pre-order meals was introduced to SAS Go travelers. The option further enhances the travel experience and promotes sustainability by avoiding unnecessary weight and waste.





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AFTER TRAVELWe engage with customers after arriving home by rewarding loyalty and providing information that might be needed after the trip.

HOW EUROBONUS POINTS WORKWhen a EuroBonus member purchases an airline ticket, they receive EuroBonus points. The portion of the airline ticket price representing the value of the EuroBonus points is shown as a liability. Revenue is recognized when travelers use their points, for example to purchase flights. Sales of EuroBonus points to partners is recognized under ‘Other revenue’ and the estimated cost is shown as a liability.


Point sharing – During the year we launched the ability to collect and share EuroBonus points with family and friends.

Lifetime Gold Membership – From 2019 and onwards we offer our most loyal customers, who have been EuroBonus Gold-members for ten consecutive years, a lifetime Gold membership.

Partner benefits – We increased the number of benefits and partners within retail, entertainment and household expenses, where Live Nation is a good example which benefits our members beyond travel. This has resulted in strong growth in member engagement with our partners in their everyday life to expand the program’s relevance and value creation.

Smooth travel experience – Priority boarding for friends and family of Gold and Diamond members as well as access to fast tracks was introduced.





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Reduced use of plastic – For example, a new breakfast box with lower plastic content was launched during fall 2019. Fossil-based plastic was also removed from the cube, starting from September.

Removal of onboard sales – Our tax-free sales onboard ended in October 2019, which reduces weight.

Aluminum can recycling – 80% of SAS flights can now recycle aluminum cans, and this figure continues to increase as adequate waste management capabilities are introduced at the remaining airports.

New intelligent catering loading system – We launched a new, intelligent catering loading system to minimize emissions.

Carbon offsetting for EuroBonus passengers – Since 2018, SAS has auto-matically offset all youth tickets and staff travel. Since February 2019 wealso introduced offsetting for all SAS trips made by EuroBonus members.

FURTHER DEVELOP SUSTAINABLE PRODUCTS & SERVICES

We continuously develop our products and services to make them as sustainable as possible in terms of resources and materials. We have shifted to a lifecycle perspective in recent years, which has enabled us to identify and adopt more sustainable solutions.

We also work together with suppliers and customers to develop more sustainable products and services throughout the travel chain. For example, we have strategic partnerships with key material suppliers, engine manufactures, fuel suppliers and ground transport suppliers, with the aim of developing more sustainable solutions for our customers.





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We are taking steps to make life even easier for Scandinavia's frequent travelers.

LOOKING AHEAD

1. Provide even greater flexibility to meet seasonalchanges in customer demand – with a continuedfocus on travel to and from Scandinavia.

2. Make sustainability fully integrated into the SAScustomer offering and value proposition – byincreasing opportunities for customers to chooseto make their journey more sustainable, such asby preordering meals and buying biofuel.

3. Improve customer experience by removing painpoints, to promote a seamless airport experience.

4. Use new technology, lean and the acceleratingpace of digitalization to further support revenuegrowth and improve the customer experience– for example personalized customer offerings,onboard high-speed WiFi and improved self- service possibilities.

5. Enhance AI and website chat bots to provide virtual assistance on our online platforms –to make booking easier and provide instant customer support.

WIN SCANDINAVIA’S FREQUENT TRAVELERS





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KEY PROGRESS IN 2019• Delivered SEK 0.9 billion in efficiency improvements.• Reduced CO2 emissions 2.4% and accelerated our work

to reduce CO2 emissions throughout our operations.• Continued work with digitalization to increase mobility

and efficiency, through the introduction of tablet devices for ground staff and various support tools.

• Started a research partnership with Airbus for electrically powered aircraft.

CREATE AN EFFICIENT AND SUSTAINABLE OPERATING MODELWe have developed our operations in recent years, to enhance efficiency, increase sustainability and reduce costs. Our efforts have resulted in improved revenues – particularly during the peak summer season. We continue to have a structured approach to reduce emissions throughout the entire operations and have been able to reduce CO2 emissions with 5.3% since 2005.

UN Sustainable Development Goal 8 promotes sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. SAS provides fair working conditions for all its employees, partners and suppliers.

UN Sustainable Development Goal 12 promotes sustainable consumption and production patterns. SAS works continuously with its product development and efficiency improvements in order to reduce its climate and environmental impacts.

UN Sustainable Development Goal 13 calls for urgent action to combat climate change. SAS works proactively to reduce its green-house gas emissions by focusing on reducing emissions from its aircraft operations.

-2.4%CO2

0.78 (0.73)

CASK, nominal

0.8 (0.76)

RASK, nominal

“Our airline operations are based on three production platforms – SAS

Scandinavia, SAS Ireland and Regional Production Partners. Each platform

is designed to meet customer specific demand.”





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Long routes: >3,000 km, 42% Medium routes: 800–3,000 km, 34% Short routes: 500–800 km, 10% Very short routes: <500 km, 14%

SHARE OF CO2 EMISSIONS

Distance

1 This figure is based on our flight operations including wet-lease. It does not cover other external services, even though we work to better understand these emissions and cooperate with our partners to reduce emissions.

To achieve more sustainable air travel, we work to reduce emissions throughout our entire operations. At SAS profitability and sustainability go hand in hand and by reducing fuel consumption we also reduce greenhouse gas emissions. Our efforts are primarily focused on reducing the CO2 emissions from our air-craft operations as they account for over 99 %¹ of our total CO2 emissions.

Most of our emissions result from longer journeys, where air travel is the only feasible means of trans-port. We are aware of the negative climate and environmental impacts of our operations, and we are working actively to reduce them, as aviation fulfills an important function in society, connecting communities, cultures and people in a time-efficient way. Aviation also facilitates successful businesses creating welfare in a very export oriented part of the world.

The goal is to reduce our total CO2 emissions 25% by 2030 compared with 2005. Around half of these reductions will be achieved through fleet renewal and other improvements, and half through the increased use of biofuels. By 2030, we aim to use biofuel on traffic equivalent to all our domestic flights.

FUEL-EFFICIENT AIRCRAFTWe are phasing in new and more energy-efficient aircraft, which is key to reducing our emissions and increasing fuel economy. Emissions and costs can also be reduced through more efficient aircraft planning, for example by ensuring the right-sizing of aircraft for the required number of passengers and to carry out fuel saving initiatives. We also look at how we can optimize our aircraft in terms of aerodynamics, weight and fuel consumption.

EFFORTS TO INCREASE OPERATIONAL AND ENVIRONMENTAL EFFICIENCY





MARKET AND STRATEGY


New aircraft during the year – Seven new A320neos and one A330 were added to our fleet, which now includes 158 aircraft with an average age of 10.2 years.

New aircraft orders – Three A321LRs have been ordered and the first will begin operation in late 2020. The A321LR is more fuel efficient and has 15–18% lower emissions than a similar aircraft of previous generation.

Fuel saving initiative – Ongoing work to continuously analyze flight data to enhance our fuel efficiency, both in planning and execution.

Pre-ordering meals – Our digital platform allows customers to pre-book meals to ensure that we only take what we need onboard, which avoids unnecessary weight, fuel consumption, cost and food waste.

Interior upgrades – With for example new chairs and mats, aircraft weight is reduced significantly. We have also switched to more sustainable materials.

Light-weight containers – We are in the process of changing to lightweight cargo containers and improved freight packaging and handling materials, such as changing to 100% recyclable cargo support beams made from recycled material, and reducing weight by 80%.

Renewed ISO 14001 certification – SAS is one of a small number of passenger airlines in the world that is fully certified according to ISO 14001. The certification is the basis for our Environmental Program to ensure that we work in a structured manner by helping to plan, implement, review and follow up measures to reduce our climate and environmental impacts.

Market and Strategy


How we create value

Aviation matters






Airbus concept illustration.

INCREASE BIOFUEL USEFor over a decade, we have worked on various activities to promote the development of Sustainable aviation fuels (biofuels).

TOWARD HYBRID & FULLY ELECTRIC AIRCRAFTReaching true fossil-free aviation, will take innovation and new technology. Long term we are aiming for the next generation aircraft in large-scale commercial operations.


Customer biofuel travel extra – We have added the option for customers to buy biofuel with their ticket. SAS makes no profit on this contribution, but the amount goes directly to buying biofuel.

Biofuel use – SAS sourced 455 tonnes of biofuel during FY 2019 an increase of 355 tonnes compared to FY 2018.

Biofuel initiatives – SAS is currently involved in several initiatives and projects to push for the large-scale commercial production of biofuel in Scandinavia. During the year, SAS together with Swedavia and the research institute RISE launched a common path towards increased production of biofuels.


Cooperation with Airbus – In May, SAS and Airbus signed a Memorandum of Understanding for hybrid and electric aircraft eco-system and infra-structure requirements research. This is a unique cooperation to establish the requirements for the next generation of more sustainable aircraft. The collaboration also includes an ambition to involve a renewable energy supplier to enable zero-emission operations.

Electrical aircraft initiatives – SAS is also involved in various other projects regarding electrical aircraft, for example The Nordic Network for Electric Aviation, launched in September 2019.





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CONTINUED EFFORTS IN DIGITALIZATIONSAS has a long history of improving customer experiences through innovation – from being the first airline with a digital ticketing and passenger information system in 1965, to an early pioneer of internet customer communications in the 1990s. We are developing innovative digital platforms, services based on Artificial Intelligence (AI) and data analytics, and stimulate innovation through engagement with partners from outside the airlines sector.


Mobile devices – Equipped employees within Maintenance Production andGround Handling Services with tablets. This has increased mobility and employee ability to manage administration tasks at aircraft, which minimizes the need for ground transport.

Virtual Reality training tools – To enable technical maintenance employees to learn and practice aircraft maintenance procedures.

Chatbots for employees – To further improve access to real-time information.

Disruption modules – Streamlining rebooking process in case of irregularities.

Support tool – We introduced a new digital support tool to optimize the use of deicing and anti-icing fluids.

Continued work with AI – To automate manual processes, introduce machine learning to optimize tasks by advanced analysis of large data flows and chatbots to help customers and employees. It has the potential to futher optimize flight routes, planning during traffic disruptions, food and drink on board, and much more.

FURTHER PROGRESS ON OPERATIONAL EFFICIENCYWe continue to adapt our production to the needs of our customers, allowing us to serve all types of destinations and customer segments, as well as adapt-ing to the highly competitive market, where increased efficiency is vital. SAS current efficiency program, which was launched in 2017 to reach SEK 3 billion in efficiency improvements by 2020, is nearing its end. The program has reached SEK 2.4 billion in efficiency improvements whereof SEK 0.9 billion during 2019 and the remaining SEK 0.6 billion is to be realized in 2020.


Continued progress with efficiency program – SEK 0.9 billion realized in efficiency improvements.

Improved operational quality – Punctuality increased 2.6 percentage points and regularity remained at high levels leading to lower claim costs.

Organizational adaptation – New organizational structure and Group management launched.

Increase of SAS Ireland production – Two new Airbus A320neo aircraft phased-in, taking the total number of aircraft in service to nine.

New short-haul regional aircraft – The majority of our regional production partners have finalized their renewal of fleet with Canadian Regional Jet (CRJ) 900 and Avions de Transport Regional (ATR) 72-600.

Increasing production adapted to seasonal demand – Introduced 25 new seasonal destinations.





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We have begun working with the next phase of initiatives to further develop an efficient and sustainable operating model.

1. New organization to accelerate transformation, drive accountability and reduce overhead cost.

2. A renewed, single-type fleet by 2023 to take us toward more sustainable and efficient air travel. The new aircraft will reduce fuel consumption and consequently CO2 emissions significantly. Besides improved fuel economy the fleet will also reduce training costs, stand-by levels, the number of spare aircraft and maintenance costs.

3. Accelerating pace in digitalization and lean to further support revenue growth, decrease costs and at the same time add value for our customers. For example predictive maintenance for aircraft and automation solutions, personalized customer offerings, onboard high-speed WiFi and improved self-service possibilities.

4. Improved asset and crew utilization through use of digital tools to improve planning and ensure a continued stable production as well as optimized organizational efficiency.

5. Enhance the operating model by establishing a new mid-size production platform, securing competitiveness as well as single-type fleet benefits.

LOOKING AHEAD

CREATE AN EFFICIENT AND SUSTAINABLE OPERATING MODEL





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Securing the right capabilities is about ensuring that every employee can make a positive contribution through their competence and experience. As our people determine our success, we constantly work to become a more attractive employer – to ensure we find, develop and retain the talent we need to drive our business forward.


UN Sustainable Development Goal 8 promotes sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. SAS provides fair working conditions for all its employees, partners and suppliers.

UN Sustainable Development Goal 5 promotes gender equality and the empowerment of all women and girls. SAS contributes toward this goal by encouraging gender equality and diversity through its recruitment policy and annual People Review.

KEY PROGRESS IN FY 2019 • Targeted engagement initiatives led to increased

employee engagement of 59 (55).• Proactive work with sick leave monitoring resulted

in an all-time low sick leave of 5.7%.

5.7% (6.1%)Sick Leave

59 (55)Employee Engagement

Index





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Senior Leader Network – The SAS Executive Program (SXP) launched in 2018 together with Duke Corporate Education, was followed up during 2019 with regular joint sessions with participants to build on program learnings and share best practice.

Senior Mentor program – Our internal senior management GROW mentor program involves eight strong leaders with the aim of transferring knowledge and developing participant skills by being mentored by Group Management.

Leadership training – More than 150 leaders have participated in ongoing leadership training. A strong focus has been on Leading in Change and ensuring that leaders have the right capabilities to drive, handle and lead in change processes. Leadership Training within maintenance production to strengthen local leadership has been conducted. This will be extended to line managers within Ground operations during 2020.

Developing pilot leadership – An extensive initiative to develop leadership skills targeted at first officers has been developed and will be implemented during 2020. Focusing on preparing first officers for the role of captain earlier as demography within the pilot corps will require faster upskilling.

We operate in a highly competitive market where it is essential to have the right capabilities throughout our business and everyone at SAS has an important role to play. It is also essential that we provide opportunities for our people to grow and develop together with SAS. We therefore drive overall employee engage-ment through excellence in leadership, to develop our competences and to make SAS an attractive workplace. Engaged employees are more committed, satisfied and motivated, which are prerequisites for satisfied customers and a better business. Our employee culture is distinguished by an incredibly strong commitment and loyalty to SAS and our customers.

We want to create a company with an even stronger culture focusing on customer experience, cost efficiency and cross functional collaboration. We do this through involvement and dialogue to ensure that all employees know how they contribute to SAS goals and our joint success.

ADAPTING TO AN INDUSTRY IN TRANSITION

EXCEL IN LEADERSHIP Strong leadership is essential for our future success, our leaders must have the capabilities to make sound strategic decisions, run well-managed teams and lead our people.





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Health and wellbeing – A SAS specific digital tool to register progress was introduced. Dedicated health ambassadors from all units were nominated in the spring. Coworker health related activities included health fairs, step counting contests, walk and talks, and fun runs. A web-based e-learning for leaders on work environment was also introduced.

Talent acquisition – During the year, two streams in a new HR-system were implemented: recruitment & onboarding and SAP SuccessFactors. When fully implemented, the system will support all HR processes – From Hire to Retire.

SAS Awards – The fifth year of the awards showcased SAS role models in the categories: SAS Person, Leader, Team Achievement, Improvement Initiative, Team Safety and Sustainability with over 1,000 nominations from all parts of SAS.

IB Case Competition Copenhagen Business School – SAS was the partner company with a sustainability focus for the case competition. 90 IB students distributed on 23 teams signed up for our case competition. At the final, we welcomed a record high total of 300 attendees, including 250 IB students and 50 representatives from our partners.

Incentive Program – A share-based incentive program was introduced to align the interest of investors and employees. The program enables the employees to share the value SAS creates.

AN ATTRACTIVE PLACE TO WORK In our highly competitive industry, we constantly need to work to become a better and more attractive employer. To be able to attract the right people requires that we have a strong employer brand that offers the opportuni-ties to grow both professionally and individually.


People Review – We reviewed about 900 individuals in our annual people review process. Focus was primarily on leadership and specialist positions, where individual performance aligns with business performance.

Development plans – Strong focus on ensuring high quality development plans for our people, and upskilling leaders to facilitate coaching develop-ment conversations.

Digital skills – Within Commercial and IT functions 80 leaders and employees were trained in facilitation skills and have created a facilitation method repository.

Digital workplace – Office365 enables us to work smarter, collaborate more and have faster interactions with large remote employee groups.

Mentor program – Internal mentoring program built entirely on the development needs of the participants. Purpose is to provide cost-efficient development, learning from others and building networks across the organization.

Intensive pilot training – To accommodate our strategy of a single type Airbus fleet with more sustainable A320neo and A350 aircraft we are training a large number of our pilots on the Airbus platform. Stockholm will be a full Airbus base in FY20 and approximately 75% of all pilots will then have a new type rating or qualification.

DEVELOP OUR COMPETENCEAt SAS, we believe that 70% of learning and develop-ment should come from assignments in our daily work, 20% from interaction and learning from others and 10% from more formal training. We work with individual per-formance development plans to ensure both business performance and individual growth and development.





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We are taking further steps to secure the right capabilities in an industry in transition.

LOOKING AHEAD

1. To develop and benchmark SAS’ leadership capabilities, an internal assessment center will be set up. The focus is to identify each leader's individual development needs and the aggre- gated result will provide feedback to the business to identify gaps in leadership capability.

2. Implement strategic workforce planning to identify key organizational capabilities, required to ensure organizational success. The result will feed into budget and people planning and ensure a coordinated and aligned people investment process.

3. Continue roll-out of new digitized people platform. The platform will add robust talent, performance and succession processes and strengthen our workforce capabilities.

4. Group dialogues in SAS Operations to further involve all employees in our business environ-ment and strategy going forward.






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FINANCIAL INSTRUMENTSSAS AS AN INVESTMENT | FINANCIAL INSTRUMENTS AND CAPITAL MARKETS

MARKET AND STRATEGY






SAS AS AN INVESTMENT

LEADING MARKET POSITION IN AN ATTRACTIVE MARKET TARGETTING FREQUENT TRAVELLERSAir travel is an important part of the Scandinavian transport infrastructure as it connects communities, cultures and people in a time-efficient way. Given Scandinavia’s economic prosperity and that the region is characterized by relatively long distances and mountainous topography, the air travel market is very large in relation to its population.

For flights to, from, and within Scandinavia, SAS has a leading market position with a market share of over 30% and the most comprehensive network. Together with Star Alliance and partners, we are in a position to offer a broad network with frequent departures. This means that SAS is often the first choice for frequent travelers. No other airline in Scandinavia has such high level of preference among frequent travelers.

OPERATING MODEL ADAPTED TO SCANDINAVIAN TRAVEL PATTERNSAirlines are capital-intensive due to major investments in aircraft and engines, and this requires efficient capital management. SAS has developed an operating model that allows it to serve all types of destinations and cus-tomer segments. The SAS operating model is based on its three production platforms – SAS Scandinavia, SAS Ireland and regional production partners.

The production platforms allow SAS to maintain its strong Scandinavian footprint, secure its presence on highly competitive routes and take part in new leisure markets as well as the right-sizing of aircraft in off-peak. As an effect of its operating model, SAS has since 2012 been able to maintain its fleet size of approxi-mately 160 aircraft and at the same time increased the number of routes with over 30% and number of pas-sengers with over 40% during the peak season.

STRONG TRACK RECORD OF TRANSFORMATIONAL CAPABILITIESSAS has shown a significant ability to adapt to an airline industry in transition. To mitigate increased competitive pressure from other airlines as well as negative macro -economic events, SAS has through the years continuously focused on improving efficiency and has since 2013 delivered SEK 6.7 billion in efficiency improvements.

FIVE REASONS TO INVEST IN SAS

MARKET AND STRATEGY





Financial instruments

Financial instruments and capital markets

SAS as an investment


STEPS TOWARD MORE SUSTAINABLE AIR TRAVEL We work hard to continuously reduce the climate and environmental impact from our flight operations. Our primary focus is to reduce our CO2 emissions. This is done through a vast number of initiatives in our daily operations and large investments in new fuel-efficient aircraft.

SAS is also collaborating with Airbus to make low or even zero emission aircraft a reality in the future. Meanwhile, we intend to increase our use of Sustainable Aviation fuels, such as biofuel significantly. This is why SAS is pushing for the large-scale commercial production of biofuel in Scandinavia. By 2030, our goal is to reduce our total CO2 emissions by 25% and to use biofuel on traffic equivalent to all SAS domestic flights.

ABILITY TO LEVERAGE OUR STRONG LOYALTY PROGRAM AND BRAND TO INCREASE ANCILLARY REVENUESSAS is one of Scandinavia’s strongest and best- known brands and has been regularly ranked as the strongest brand within the travel category in Scandinavia and Europe.

SAS EuroBonus is Scandinavia’s largest loyalty program within travel and experiences and forms the core of our efforts to establish a closer relationship with our customers. EuroBonus has over 6 million members and more than 100 partners, which repre-sents a valuable customer database and sets us apart from the competition. SAS also offers a program to reinforce loyalty among corporate customers — SAS for Business. Corporate-agreement customers account for just over a third of our passenger revenue.

MARKET AND STRATEGY









FINANCIAL INSTRUMENTS AND CAPITAL MARKETSSAS strives to provide transparent and relevant information to the capital market so that efficient trade can be conducted in our financial instruments. These include the common shares listed on Nasdaq Stockholm with secondary listings in Copenhagen and Oslo.

RECAPITALIZATIONIn February of fiscal year 2018, SAS redeemed 70% of its preference shares for approximately SEK 2.6 billion. In November 2018 of fiscal year 2019, SAS redeemed the remainder of preference shares for approximately SEK 1.1 billion.

In April 2019, SAS repaid the convertible notes issued in 2014 amounting to SEK 1.6 billion. Altogether SAS has redeemed SEK 3.7 billion in preference shares and repaid SEK 1.6 billion of convertible notes in 2018 and 2019.

In October, SAS issued SEK 1.5 billion in a perpetual hybrid bond with a floating interest rate of STIBOR three months plus 825 bps. The proceeds from the new issue will be used to strengthen equity for general corporate purposes, including refinancing of financial indebtedness and funding of aircraft acquisitions.

SHARE PRICE PERFORMANCE FY 2019In total, the price per common share decreased 26% to SEK 15.1 during the fiscal year. Over the same period, the Nasdaq Stockholm OMX30 index increased 14.4%.

MARKET AND STRATEGY









HOW WOULD YOU DESCRIBE THE YEAR FROM A FINANCIAL PERSPECTIVE? If we start with the positives, we noticed an improved supply/demand balance in Scandinavia during the second half of the year. The improvement was a main contributor to a stronger unit revenue and yield, which in turn led to an increase of total revenue of nearly 5%. Another point I would like to highlight is the continued progress with our efficiency program. The program was initiated in 2017 with the aim of delivering SEK 3 billion by 2020. To date we have achieved SEK 2.4 billion, whereof SEK 0.9 billion in fiscal year 2019.

Unfortunately, the positive points I mentioned were offset by several negative effects. The SEK continued to depreciate during the year and closed 5% lower to the USD compared to the beginning of the year. For a company like SAS, with a substantial part of its costs in USD, this had a negative effect on our profitability. Also, jet-fuel prices continued to be volatile during the year. Although they declined compared to last year, our hedge positions from the beginning of the year increased our jet-fuel cost with 21% compared to last year. As a final point the pilot unions strike, where most of our fleet was grounded for seven consecutive days, had a negative earnings effect of SEK 615 million.

SAS REPAID ITS’ CONVERTIBLE BOND, REDEEMED ITS PREFERENCE SHARES AND ISSUED A NEW HYBRID BOND. WHAT WAS THE RATIONALE BEHIND THE TRANSACTIONS? The convertible bond, which was issued in 2014, reached its maturity during the year and was repaid as it had not been converted to shares. Similarly, the pref-erence shares reached a point where the dividend yield would increase from 10% to 12% unless redeemed. As a result the instrument was redeemed to avoid the increased cost. Both the convertible and the preference shares had a vital role in transforming the company toward the stronger position seen today.

During the last quarter of the year we decided to strengthen our equity position through the issuance of a hybrid bond amounting to SEK 1.5 billion. The issuance was aimed to raise equity ahead of the new IFRS 16 accounting standard regarding leases which will be adopted from fiscal year 2020.

WHAT IS THE IMPACT ON SAS OF THE NEW ACCOUNTING STANDARD During the year we have prepared for IFRS16, which is a new accounting standard applicable from 1 November 2019. Under IFRS16, SAS will no longer make a distinction between finance leases and operating leases. As an effect, the work during the year has been

centered on defining values of operating leases, which were previously off-balance sheet. These will now be accounted for as Right of Use assets (ROU) and lease liabilities in the balance sheet.

In practice this means we recognize the assets and liabilities for most of our leases, which increases our balance sheet by approximately SEK 17 billion as we enter fiscal year 2020. In the statement of profit and loss, leasing cost will be replaced by interest cost and depreciation of the ROU assets.

SAS uses a modified retrospective approach to its leases, which in practice means that all leases are discounted to 1 November 2019. As compared to the old standard, in which leasing costs were linear during the life of the lease, we will now see higher costs in the early part of a lease. These costs (split between depreciation and interest costs) will decline over the life of the lease, as the lease liability and thereby the interest cost is reduced. Based on SAS’ expected lease portfolio, we expect profit before tax (EBT) to be reduced by an amount of SEK 400–500 million in fiscal year 2020 due to the implementation of IFRS16. As a majority of the lease liabilities are derived from aircraft leases in USD, any currency fluctuations will impact the income statement either positively or negatively.

INTERVIEW WITH TORBJØRN WIST, CFO

MARKET AND STRATEGY









Owner distribution by holdings Number of shares % of capital Number of votes Number of owners % of all shareholders1–1,000 11,841,305 3.1% 3.1% 47,431 76.6%1,001–2,000 8,563,047 2.2% 2.2% 5,509 8.9%2,001–10,000 32,812,151 8.6% 8.6% 7,102 11.5%10,001–100,000 44,188,037 11.6% 11.6% 1,703 2.8%100,001–1,000,000 36,303,645 9.5% 9.5% 143 0.2%1,000,001– 220,487,621 57.7% 57.7% 30 0.1%Anonymous ownership 28,386,745 7.4% 7.4% N/A N/A

DISTRIBUTION OF COMMON SHARES

Sweden, 44.1% Denmark, 32.0% Norway, 3.2% Others, 20.7%

VOTING RIGHTS IN SAS, BY COUNTRY, 31 OCTOBER, 2019

State ownership, 30.3% Fund company, 14.7% Private ownership, 10.9% Other, 26.7% Pension & Insurance, 3.5% Foundation, 6.6% Anonymous, 7.4%

BREAKDOWN OF THE SAS SHARE CAPITAL, BY VOTES, 31 OCTOBER, 2019

Value, MSEK No. of shares, million

FY 2019 FY 2018 FY 2019 FY 2018

Common shares

Stockholm 10,788 12,684 641 622

Copenhagen 3,911 2,783 219 134

Oslo 373 479 22 24

Others 10,859 12,735 613 622

Total common shares 25,931 28,681 1,495 1,402Source: Euroclear, VP and VPS.

COMMON SHARES TRADED PER EXCHANGE

Event No. of new shares Total no. of shares Nominal value/share, SEK Nominal share capital

May 2001 Company registration 50,000 50,000 10 500,000

July 2001 Non-cash issue 155,272,395 155,322,395 10 1,553,223,950

August 2001 Non-cash issue 6,494,001 161,816,396 10 1,618,163,960

May 20022 New share issue, common shares 2,683,604 164,500,000 10 1,645,000,000

April 2009 New share issue, common shares 2,303,000,000 2,467,500,000 2.5 6,168,750,000

April 2010 New share issue, common shares 7,402,500,000 9,870,000,000 0.67 6,612,900,000

June 2010 Reverse split, common shares - 329,000,000 20.1 6,612,900,000

February 2014 New issue of preference shares 7,000,000 336,000,000 20.1 6,753,600,000

January 2016 Conversion of convertible bond 1,082,551 337,082,551 20.1 6,775,359,275

November 2017 New share issue, common shares 52,500,000 389,582,551 20.1 7,830,609,275

February 2018 Redemption, preference shares -4,898,448 384,684,103 20.1 7,732,150,470

November 2018 Redemption, preference shares -2,101,552 382,582,551 20.1 7,689,909,2751) Before SAS AB was formed in May 2001, SAS was listed through SAS Danmark A/S, SAS Norge ASA and SAS Sverige AB.2) Technical change in connection with consolidation to one common share.

CHANGE IN SHARE CAPITAL1

THE SAS SHARE

MARKET AND STRATEGY





DISTRIBUTION OF SHAREHOLDERS AND CHANGESAs of October 31, 2019, SAS had 61,918 holders of common shares.

Holdings in Scandinavia were in total about 79%, with Sweden accounting for 44%, Denmark 32% and Norway 3% as of 31 October 2019. Of the remaining holdings outside Scandinavia, totalling 21%, 11% were registered in the U.S.

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REPORT BY THE BOARD OF DIRECTORS | DIVIDENDS, DISPOSITION OF EARNINGS AND OUTLOOK CORPORATE GOVERNANCE REPORT | BOARD OF DIRECTORS | GROUP MANAGEMENT

MARKET AND STRATEGY



OPERATIONS OTHERFINANCIAL STATEMENTS



REPORT BY THE BOARD OF DIRECTORSSUMMARY OF FISCAL YEAR 2019• Income before tax and items affecting comparability:

MSEK 786 (2,136)• Revenue for the year: MSEK 46,736 (44,718)• The total number of passengers decreased 1.1%

and amounted to 29.8 million.• Unit revenue (PASK) increased 2.5%¹• Unit cost (CASK) rose 2.1%²• Income before tax was MSEK 794 (2,050)• Net income for the year was MSEK 621 (1,595)1) Currency-adjusted. 2) Currency-adjusted and excluding jet fuel.

The Board of Directors and the President of the Parent Company, SAS AB, hereby submit the annual report for SAS AB and the SAS Group for fiscal year 2019 (1 November 2018–31 October 2019). SAS AB is registered in Stockholm and the address of its head office is Frösundaviks allé 1, Solna, Stockholm, Sweden, and its Corporate Registration Number is 556606-8499. The company conducts airline operations, including ground handling, technical maintenance and cargo, in a Scandinavian and inter-national network.

MARKET DEVELOPMENT FISCAL YEAR 2019Market capacity continued to grow through fiscal year 2019, albeit at a lower rate than the preceding year. Measured in the number of seats offered, capacity to, from and within Scandinavia increased 1% in fiscal year 2019. The total number of passengers to, from, and with-in Scandinavia decreased 1.2% during the fiscal year.

The number of passengers who traveled on SAS’ scheduled routes decreased 1.2%, totaling 28.5 million in fiscal year 2019; the decline was driven by the seven-day pilot strike in late April and early May.

SAS scheduled traffic on intercontinental routes declined 3.3%, driven by the pilot strike and lower demand. On European routes and within Scandinavia, traffic declined 1.6%, largely driven by lower demand for European destinations. Domestic traffic rose 1.0%, with the majority of the increase posted by Norway. SAS’ charter capacity increased 3.8% and traffic rose 2.9% in the fiscal year, driven by effects from the continued seasonal adaptation of the offering.

During the fiscal year, the currency-adjusted yield increased 3.2% and currency-adjusted unit revenue (PASK) rose 2.5% compared with last year. At the same time, SAS’ currency-adjusted unit cost excluding jet fuel increased 2.1%.

TRAFFIC TRENDS FOR SAS

SAS’ scheduled traffic FY19 FY18 ChangeNumber of passengers (000) 28,451 28,794 -1.2%RPK, Revenue Passenger Kilometers (mill) 35,825 36,496 -1.8%ASK, Available Seat Kilometers (mill) 48,471 49,023 -1.1%Load factor 73.9% 74.4% -0.5¹Passenger yield (currency-adjusted), SEK 0.99 0.96 +3.2%Currency-adjusted unit revenue, PASK, SEK 0.73 0.71 +2.5%

FY19 vs. FY18Geographic trends, scheduled traffic RPK ASKIntercontinental -3.3% -3.0%Europe/Intra-Scandinavia -1.6% -0.9%Domestic +1.0% +2.0%

SAS’ charter traffic FY19 FY18 ChangeNumber of passengers (000) 1,310 1,289 +1.7%RPK, Revenue Passenger Kilometers (mill) 3,550 3,450 +2.9%ASK, Available Seat Kilometers (mill) 3,900 3,758 +3.8%Load factor 91.0% 91.8% -0.8¹

Total traffic (scheduled and charter traffic) for SAS FY19 FY18 ChangeNumber of passengers (000) 29,761 30,082 -1.1%RPK, Revenue Passenger Kilometers (mill) 39,375 39,946 -1.4%ASK, Available Seat Kilometers (mill) 52,371 52,781 -0.8%Load factor 75.2% 75.7% -0.5¹Currency-adjusted unit cost, CASK, excl. jet fuel 0.6 0.59 +2.1%1) Figures given in percentage points.

Report by the Board of Directors

Dividends, disposition of earnings and outlook

Corporate Governance Report

Group management


Board of Directors

MARKET AND STRATEGY






CURRENCY EFFECT BETWEEN YEARS

MSEK

FY19versus

FY18

FY18 versus

FY17Revenue 1,180 931Payroll expenses -177 -208Other expenses -1,782 -348Translation of working capital 206 -465Income from hedging of commercial flows -10 461Operating income -583 371

Net financial items -10 -38Income before tax -593 333

CURRENCY EFFECTS ON NET INCOME FOR THE PERIOD

MSEK FY19 FY18 Translation of working capital -20 -226Income from hedging of commercial flows 283 293Operating income 263 67

Currency effect on the Group’s financial net debt -6 4Income before tax 257 71

CURRENCY EFFECT ON REVENUE AND OPERATING EXPENSES, NETMSEK

-1,200

-1,000

-800

-600

-400

-200

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200

USD DKK NOK EUR Asian currencies

Other currencies

Punctuality and regularitySAS achieved an arrival punctuality rating of 80.3% (77.7) in fiscal year 2019. Punctuality trended positively driven by a number of initiatives during the year: the introduction of a new disruption module and adjustments to the network to optimize the reallocation of buffers and stand-by capacity.

Regularity for SAS was 97.5% (98.0) and was nega-tively impacted by the seven-day pilot strike in April and May.

INCOME NOVEMBER 2018–OCTOBER 2019SAS generated an EBIT of MSEK 1,166 (2,530). Income before tax amounted to MSEK 794 (2,050) and income after tax was MSEK 621 (1,595). Tax for the period amounted to MSEK -173 (-455). Year-on-year, the exchange-rate trend had a positive impact on revenue of MSEK 1,180 and a negative effect on operating expenses, including leasing costs, of MSEK 1,763. Foreign exchange rates thus had a negative impact on operating income of MSEK 583. Net financial items were negatively impacted by currency items amount-ing to MSEK 10. In total, currency effects had a net negative impact of MSEK 593 on EBT. The effect mainly relates to a stronger USD.

RevenueRevenue totaled MSEK 46,736 (44,718), see Note 2. Currency-adjusted revenue was up MSEK 838 year- on-year and the currency-adjusted deviation is explained below.

The negative revenue impact of the strike is estimated at approximately MSEK 730. Currency-adjusted pas-senger revenue increased 1.3%, primarily due to MSEK 1,097 from a higher yield. The higher yield was offset by lower scheduled capacity (ASK) and load factor, which had a negative impact on revenue of MSEK 349 and MSEK 279, respectively.

Cargo revenue decreased MSEK 202, mainly due to lower volumes and reduced fuel prices, since the fees charged by SAS are linked to fuel prices. Charter revenue was up MSEK 141, primarily relating to higher volumes. Other traffic revenue rose MSEK 182, mainly attributable to unused tickets and preseating.

Other operating revenue was MSEK 248 higher year-on-year, mainly relating to higher revenue from credit card fees and sale of EuroBonus points. REVENUE BREAKDOWN FISCAL YEAR 2019

Passenger revenue 75.9% (76.2)

Charter revenue 4.5% (4.4)

Freight and mail revenue 3.2% (3.7)

Other traffic revenue 6.3% (6.0)

Other operating revenue1 10.1% (9.7)

1) Ground handling services, technical maintenance, terminal and forwarding services, sales commissions and fees, on-board sales and other operating revenue.




Group management


Board of Directors

MARKET AND STRATEGY






Operational and financial expensesPayroll expenses amounted to MSEK -9,934 (-9,441). After adjustment for currency and items affecting comparability, payroll expenses increased MSEK 362 year-on-year. The increase related to standard salary increases and a higher number of employees, partly offset by efficiency measures.

Other operating expenses amounted to MSEK -30,253 (-28,338), see Note 4. These expenses largely consisted of jet-fuel costs of MSEK -9,672 (-7,994), representing an increase of MSEK 1,678. Adjusted for currency, jet-fuel costs increased MSEK 1,002, or 11.6%. The cost was positively affected by an amount of MSEK 485 due to lower jet-fuel prices. The decrease in jet-fuel prices was offset by hedge effects of MSEK -1,557, partly counteracted by positive volume effects of MSEK 220. Government user fees of MSEK -4,194 (-4,159) were MSEK 112 (currency-adjusted) lower than last year due to significant price decreases and lower volume. Technical maintenance costs totaled MSEK -2,893 (-2,897). Adjusted for currency, technical maintenance costs decreased MSEK 239, mainly due to lower engine costs. Wet-lease costs amounted to MSEK -1,472 (-1,283). Adjusted for currency, wet-lease costs increased MSEK 101 year-on-year, mainly due to higher volumes and a contractual settlement.

During the period, the ongoing efficiency program resulted in cost reductions of approximately MSEK 855.

Leasing costs for aircraft totaled MSEK -3,561 (-3,156). Adjusted for currency effects, leasing costs increased MSEK 128.

Financial income and expenses amounted to MSEK -372 (-480), of which net interest expense was MSEK -312 (-430). The decrease primarily related to higher financial income and capitalization of interest expenses for pre-delivery payments (PDPs).

COST BREAKDOWN FOR SAS, FISCAL YEAR 2019

Payroll expenses 21.8% (22.1)

Jet-fuel costs 21.2% (18.7)

Government user fees 9.2% (9.7)

Technical aircraft maintenance 6.3% (6.8)

Handling costs 6.2% (6.2)

Sales and distribution costs 6.0% (6.0)

Catering costs 2.7% (3.0)

Computer and telecommunication costs 3.6% (3.6)

Wet-lease expenses 3.2% (3.0)

Other1 7.8% (9.2)

Leasing costs for aircraft 7.8% (7.4)

Depreciation and amortization 4.2% (4.1)

1) Property costs, cost of handling passengers on the ground, freight and administration costs, etc.

Items affecting comparabilityTotal items affecting comparability were MSEK 8 (-86) during the period, of which MSEK 112 (479) pertained to capital gains from aircraft transactions and MSEK -230 (-255) related to restructuring costs for personnel and properties. Impairment of assets amounted to MSEK -93 (-206) and MSEK 71 (-100) related to the release of a one-time award; of the initial MSEK 100 set aside in fiscal year 2018, MSEK 29 will be distributed to SAS employees. Other items affecting comparability related to a contractual settlement and the release of a fiscal-related provision for indirect taxes in China. The divestment of SAS’ shareholding in Air Greenland resulted in a capital gain of zero. In the comparative figures, MSEK -4 relates to the sale of the subsidiary Cimber.




Group management


Board of Directors

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BALANCE SHEET AND FINANCIAL POSITIONAssetsIntangible and tangible fixed assets increased MSEK 3,247 during the period. Changes for the period included investments of MSEK 6,191, amortization and depreciation of MSEK -1,924, divestments of MSEK -1,224, and other and currency effects of MSEK 204. The amount for investments during the period included delivery payments for six new Airbus A320neos, one Airbus A330 and the purchase of three Boeing 737s that were previously on operating leases. Other aircraft investments comprised capitalized expenditures for engine maintenance, modifications, spare parts and advance payments to Airbus.

Financial fixed assets decreased MSEK 2,093 mainly due to a decrease in SAS’ defined-benefit pension plans and restricted accounts, partly offset by increased deferred tax assets.

Current receivables decreased MSEK 293. This decrease was mainly attributable to lower interest- bearing receivables.

Cash and cash equivalents were MSEK 8,763 (9,756) at 31 October 2019. Unutilized contracted credit facilities amounted to MSEK 2,899 (2,785). Financial prepared-ness amounted to 38% (42) of SAS’ fixed costs. Shareholders’ equity and liabilitiesShareholders’ equity decreased MSEK 1,896 since 31 October 2018. The decrease is mainly related to a redemption of preference shares of MSEK -1,086, net income for the period of MSEK 621, actuarial effects on defined-benefit pension plans of MSEK -1,752 and changes in cash-flow hedges of MSEK -1,109.

Shareholders equity includes a MSEK 1,500 hybrid bond issued in October 2019. The hybrid bond net position recognized in equity is MSEK 1,477, after issuing expenses. The hybrid bond is deeply sub-ordinated and only senior to the share capital.

The hybrid bond coupon is floating 3 month STIBOR plus a margin of 8.25% for the first five years, and thereafter steps up to 3 month STIBOR plus a margin of 13.25%. The hybrid bond has no maturity date, but SAS has the right to redeem it after five years and at every interest payment date thereafter.

Long-term liabilities increased MSEK 1,515 and current liabilities increased MSEK 194. The increase in liabilities was mainly due to market value changes for financial derivatives, currency effects and a higher unearned transportation liability.

Interest-bearing liabilitiesOn 31 October 2019, interest-bearing liabilities amounted to MSEK 11,283, an increase of MSEK 1,191 since 31 October 2018. New loans and amortization for the period were MSEK 2,364 and MSEK 2,362 respec-tively. The change in gross debt since 31 October 2018 included a negative trend in the fair value of financial derivatives, which increased liabilities MSEK 738. Currency revaluations increased liabilities MSEK 403, and accrued interest and other items increased liabili-ties MSEK 48. In 2014, SAS issued a convertible bond and at 1 April 2019 the bond was repaid at a nominal value of MSEK 1,574.

Current interest-bearing liabilities totaled MSEK 1,833 (2,600) of the interest-bearing liabilities and comprised both borrowings that mature within one year of MSEK

785 and accrued interest and financial derivatives of MSEK 1,048. Long-term liabilities totaled MSEK 9,450 (7,492) and consisted of subordinated loans, bonds and other loans.

The average fixed-interest period for gross financial debt is governed by SAS’ financial policy and has a target tenor of 2 years. The average fixed-interest period was 3.6 years as of October 2019.

BREAKDOWN OF SAS’ INTEREST-BEARING LIABILITIES, 31 OCTOBER 2019

Liability Note MSEKSubordinated loans 24 1,240Bonds 25 3,063Convertible bond 26 –Finance leases 26 4,920Utilized facilities/other loans 26 1,011Short-term loans 30 1,049Total 11,283

REPAYMENTS OF INTEREST-BEARING LIABILITIES, 31 OCTOBER 2019MSEK

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Group management


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MARKET AND STRATEGY






Financial net debt/receivablesAt 31 October 2019, the financial net debt amounted to MSEK 328, an increase of MSEK 2,760 since 31 October 2018. The increase was primarily due to a neg-ative cash flow before financing activities, market value changes on financial derivatives and the redemption of preference shares. The increase was partially offset by the hybrid bond issued in October 2019.

FINANCIAL NET DEBTMSEK

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-2,000

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Key ratiosAt 31 October 2019, the return on invested capital (ROIC) was 8%, down 6 percentage points since 31 October 2018. The decrease was mainly due to lower adjusted EBIT.

Financial preparedness decreased 4 percentage points, and was 38% at 31 October 2019. The reduction was mainly related to lower cash and cash equivalents, and higher fixed costs.

The adjusted financial net debt/EBITDAR ratio changed to a multiple of 3.7. At 31 October 2018 the multiple was 2.7. The change primarily related to increased adjusted financial net debt.

At 31 October 2019, the equity/assets ratio was 16%, down from 21% at 31 October 2018. The decline was primarily due to the total change in comprehensive income of MSEK -2,260.

Credit ratingSAS is rated by three credit-rating agencies: Moody’s, Standard and Poor’s and the Japanese agency, Rating and Investment Information Inc. (R&I). SAS’ credit rating was upgraded in November 2017, following the equity issue.

SAS CREDIT RATING

Rating Outlook

Moody’s B1 Stable

Rating and Investment information B+ Stable

Standard & Poor’s B+ Stable

FINANCIAL TARGETS AND DIVIDEND POLICYThe overriding financial goal for SAS is to create shareholder value. To reach this goal, SAS works with its customer offering, efficiency enhancements and sustainability to provide the basis for long-term sustainable profitability.

SAS operates in a capital-intensive industry that requires optimization of the capital structure. For this reason, SAS has three financial targets:

The SAS financial targets are:• Return on invested capital (ROIC): Exceed 12%

measured over a business cycle. • Adjusted financial net debt/EBITDAR: Multiple of

less than three (3x). • Financial preparedness: Cash and cash equivalents

and available credit facilities must exceed 25% of SAS annual fixed costs.

The ROIC target corresponds with the capital markets’ and SAS’ internal assessment of SAS’ weighted average cost of capital (WACC). This is also linked to SAS’ dividend policy for holders of common shares, which stipulates that dividends can first be paid when value is created through SAS’ ROIC exceeding its WACC.




Group management


Board of Directors

MARKET AND STRATEGY






Gearing target – adjusted financial net debt/EBITDAR is a key ratio used by credit rating agencies and banks for assessing creditworthiness and includes the value of leased aircraft. The aim of maintaining a ratio with a multiple of less than three (3x) is aligned with SAS’ ambition of improving the financial position and credit rating, and thereby lowering financing costs.

The financial preparedness target is 25% of annual fixed costs. Normally, this covers SAS’ unearned trans-portation revenue liability and also meets regulatory requirements regarding liquidity.

Considerable uncertainty continues in the macro envi-ronment with regard to foreign exchange-rates, jet-fuel prices and changes within the European airline indus-try, with intensified competition. In conjunction with the transition to IFRS 16 from fiscal year 2020, under which the lessee recognizes an asset (the right to use an asset) and a financial liability in the balance sheet, SAS will review the targets to ensure their continued relevance.

CALCULATION OF ROIC

MSEK October 2019

EBIT, 12 months 1,166

33% of aircraft leasing costs, 12 months¹ 1,175

33% of aircraft leasing revenue, 12 months¹ –

Adjusted EBIT 2,341

Average shareholders’ equity 4,372

Average financial net debt 1,106

Capitalized leasing costs (×7), average 23,162

Invested capital 28,640

ROIC 8%

CALCULATION OF ADJUSTED FINANCIAL NET DEBT/EBITDAR

MSEK

Average financial net debt 1,106

Capitalized leasing costs (×7), average 23,162

Total 24,268

EBITDAR, 12 months 6,549

Adjusted financial net debt/EBITDAR 3.7x

CALCULATION OF FINANCIAL PREPAREDNESS

MSEK

Cash and cash equivalents 8,763

Receivables, other financial institutions -290

Unutilized credit facilities 2,899

Total 11,372

Total operating expenses 43,748

Jet-fuel costs -9,672

Government user fees -4,194

Total fixed costs 29,882

Financial preparedness 38%

Dividend policySAS’ dividend policy entails that dividends to holders of common shares are paid from value-creation whereby SAS’ ROIC exceeds the WACC. The dividend should take into account any restrictions applying to the Group’s financial instruments.²

Dividends require a resolution by a shareholders’ meet-ing, and that SAS AB has distributable earnings. The Group’s earnings, expected performance, financial position, investment requirements and relevant eco-nomic conditions should also be taken into account.

Parent Company The Parent Company SAS AB has conducted extremely limited intra-Group services and, as of 31 October 2019, had three employees. Revenue totaled MSEK 58 (56) and operating expenses MSEK 80 (64). Net financial items amounted to MSEK -55 (-18). Net income for the year was MSEK -56 (-40). The risks described in the Report by the Board of Directors also encompass the Parent Company.

1) To ensure the aircraft financing form does not affect the outcome of ROIC, a standard 33% of the aircraft leasing costs/revenues are added to the reported operating income (EBIT).

2) At 31 October 2019, SAS had one financial instrument issued that limits dividend rights for holders of SAS common shares. SAS has issued a SEK 2.25 billion unsecured bond, which stipulates that dividends to shareholders may not exceed 50% of net income for the year, but does not apply to dividends on other types of financial products or instru-ments. No dividend may be distributed by SAS in contravention of the bond terms.




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FINANCING AND CAPITAL MANAGEMENTFinancingSAS can use bank loans, bonds, convertible bonds, subordinated loans, export credits and leasing as sources of financing. New loans raised amounted to MSEK 2,364 (3,853) and comprised secured loans of MSEK 2,364.

Invested capitalAs a natural consequence of the introduction of SAS’ financial targets, which take SAS’ total capital into account, the company has increased focus on its capital structure. At 31 October 2019, invested capital totaled MSEK 28,640 (26,311).

The majority of the invested capital comprised aircraft and engines, which represent the bulk of SAS’ invested capital. In connection with aircraft transactions, the financing method is a very important factor that is taken into account together with residual value risks and financing costs.

Aircraft fleet SAS has simplified its aircraft fleet considerably over the last few years; today, it has three aircraft types under SAS’ own traffic license. The aircraft fleet con-sists of Boeing 737 NGs, the Airbus A320 family and Airbus A330/340s. In addition, SAS wet-leases 33 aircraft through strategic business partners. In 2013, SAS ordered eight Airbus A350s for delivery in the 2019–2021 period. In June 2011, SAS placed an order for 30 Airbus A320neo with delivery from 2016 to 2019. In April 2018, SAS placed an additional order for 50 Airbus A320neo aircraft with delivery from spring 2019 to 2023. The order means that for the first time, SAS will have a single-type fleet by 2023 that consists

of the market’s most efficient short- and medium-haul aircraft in terms of cost and fuel economy.

The aircraft fleet is SAS’ largest tangible asset. At 31 October 2019, the SAS aircraft fleet represented 34% (26) of the company’s recognized assets.

SAS depreciates directly-owned aircraft over 20 years utilizing a residual value of 10%, excluding aircraft engines. Aircraft engines are depreciated over around eight years. Maintenance of leased aircraft is set off on an ongoing basis related to use, whereas mainte-nance of owned aircraft is capitalized and depreciated. Passenger aircraft are generally used for 20 to 25 years in commercial passenger traffic but aircraft that are well maintained can operate for substantially longer periods. There are still items of value in an aircraft after it has been taken out of service, for example engines and spare parts.

Financing of aircraft ordersAt 31 October 2019, SAS had aircraft orders for 52 Airbus A320neos, three A321LR aircraft and eight Airbus A350-900s for delivery up through 2023. In financing aircraft, SAS uses a combination of operating leases and financial leases, as well as secured bank loans and credit facilities. SAS aims to maintain a balance between owned and leased aircraft based on a cost, risk and flexibility perspective. The overall intention is to over time have about half of the fleet on operating leases. SAS intends to utilize a mix of bank loans, finance leases and bank facilities to finance owned aircraft. When leasing, which is done via sale and leaseback agreements, aircraft are sold on delivery and leased back over an eight- to 12-year period.

Of the remaining aircraft order for 52 Airbus A320neos, SAS has financed 14 aircraft through operating leases and through JOLCO (Japanese finance leases with a purchasing option). In addition, SAS has begun arranging finance for the remaining the eight Airbus A350s.

AIRCRAFT ON FIRM ORDER 2019–2024

FY20

FY21

FY22

FY23

FY24

Airbus A320neo 15 2 15 18 2

Airbus A321LR 1 2

Airbus A350 4 4

At 31 October 2019, SAS’ contracted future purchase commitments for aircraft orders with delivery in the 2020–2023 period totaled MUSD 2,782.

CONTRACTED OPERATIONALLY AND FINANCIALLY LEASED AIRCRAFT INCL. MATURITY PROFILES

FY20

FY21

FY22

FY23

FY24>

Maturing operational leases, aircraft 10 15 5 13 27

Wet-leased aircraft, maturity 4 3 14 11 3

Aircraft leasing commitments, MSEK 3,833 3,569 3,180 2,692 10,276

Finance leases, aircraft, MSEK 421 1,118 309 586 2,185

Present value of lease commitments at different discount rates, aircraft

Discount rate 5% 6% 7%

Present value of contracted lease commitments, aircraft, 31 October 2019, MSEK 19,605 18,938 18,306




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Financing of pre-delivery payments for aircraftAirlines make prepayments before delivery. In addition to payment in conjunction with placing the order, pre-delivery payments (PDPs) normally commence when production of the aircraft starts about two years prior to delivery. In fiscal year 2019, these PDPs were financed through cash flow generated by SAS’ operations. With the current financial preparedness, which exceeds the target, SAS has chosen not to con-clude any additional PDP financing for SAS’ aircraft orders.

Flexibility in the aircraft fleet Through a combination of ownership, and operational and wet-leased aircraft, the aim is to have high flexi-bility regarding the return of aircraft. This is important, as the airline industry is exposed to several macro- economic events that could rapidly have a negative effect on demand. SAS has 25 aircraft on operational lease agreements that could be returned to the owners over the next two years. They represent 20% of SAS’ total aircraft fleet.

THE SAS AIRCRAFT FLEET AT 31 OCTOBER 2019

SAS Group’s Aircraft Fleet Age Owned LeasedWet

Lease TotalSAS

ScandinaviaSAS

IrelandWet

LeaseIn service for

SAS Group Firm

order purchaseFirm

order lease

Airbus A330/340/350 12.9 10 6 16 16 16 8

Airbus A320 family 7.4 17 34 51 42 9 51 38 17

Boeing 737 NG 15.2 28 30 58 58 58

Bombardier CRJ 4.0 25 25 25 25

ATR-72 4.7 8 8 8 8

Total 10.2 55 70 33 158 116 9 33 158 46 17




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Seasonal effects and cash-flow optimizationSAS analyzes balance-sheet items and operating trends to optimize cash flow with the aim of attaining the lowest possible funding cost within the frame-work of SAS’ financial policy. As a result of operating liabilities exceeding current assets, working capital amounted to MSEK -13,313 (-13,347) at 31 October 2019, representing a year-on-year decline of MSEK 34.

Cash flow from operating activities in fiscal year 2019 amounted to MSEK 3,318 (4,559). The year-on-year decline was mainly due to lower earnings. Cash flow from operating activities follows clear seasonal trends. Cash flow is strongest in the second and fourth quarters, which coincides with high passenger volumes and a higher proportion of advance bookings. The share of advance bookings is highest in period of January to May period ahead of the holiday period and in the September to October period. Since passenger revenue is recognized when SAS or another airline provide the transportation, this means that seasonal variations impact cash flow and earnings differently. Accordingly, earnings are strongest in the third and fourth quarters (May to July and August to October), which is when traffic volumes are highest.

SUSTAINABILITY REPORTIn accordance with the Swedish Annual Accounts Act, SAS has prepared a statutory Sustainability Report, which has been incorporated into the Annual and Sustainability Report 2019, separate from the Report by the Board of Directors, on pages 129–148. The auditor's opinion regarding the statutory sustainability report is included on pages 149–150.

LEGAL ISSUESThe European Commission’s decision in November 2010 found SAS and many other airlines guilty of alleged participation in a global air cargo cartel in the 1999–2006 period and ordered SAS to pay a fine of MEUR 70.2. SAS appealed the decision in January 2011 and in December 2015, the Court of Justice of the European Union (CJEU) annulled the European Commission’s decision including the MEUR 70.2 fine. The CJEU’s ruling entered into force and the MEUR 70.2 fine was repaid to SAS at the beginning of March 2016. The European Commission took a new decision on the same issue in March 2017 and again imposed fines on SAS and many other airlines for alleged partici-pation in a global air cargo cartel in the 1999–2006 period. The fine of MEUR 70.2 was the same as that imposed under the 2010 decision. SAS has appealed the European Commission’s decision and a hear-ing was held in the CJEU in July 2019. Judgment is expected in 2020.

As a consequence of the European Commission’s decision in the cargo investigation in November 2010 and the renewal of that decision in March 2017, SAS and other airlines fined by the Commission are involved in various civil lawsuits initiated by cargo customers in some countries, including the Netherlands and Norway. SAS contests its responsibility in all of these legal processes. Unfavorable outcomes in these disputes could have a significantly negative financial impact on SAS. Further lawsuits by cargo customers cannot be ruled out. No provisions have been made.

A large number of former cabin crew of SAS in Denmark are pursuing a class action against SAS at a Danish court, demanding additional payments from SAS to the Pension Improvements Fund for Cabin Crew (the CAU fund) citing that the CAU fund is a defined-benefit supplementary plan. The City Court of Copenhagen, in a judgment in December 2016, rejected the cabin crew’s demand for further payments into the CAU fund by SAS. The cabin crew appealed the judgment in January 2017 and court proceedings will take place in March 2020.

Following the SAS pilot strike in April and May 2019, affected passengers turned to SAS for standard-ized compensation under the Flight Compensation Regulation (EU 261/2004). SAS disputed its liability with reference to the strike being an extraordinary circumstance. In August 2019, the Swedish National Board for Consumer Disputes (Allmänna reklamations-nämnden) ruled in favor of SAS. The same assessment was made by the Norwegian Travel Complaint Handling Body (Transportklagenemnda) in October 2019. This notwithstanding, a number of passengers and claim firms have brought claims against SAS in national courts in several EU member states. In August 2019, a claim firm representing a large number of affected passengers initiated court proceedings in Denmark and Sweden against SAS, asking the courts to request a preliminary ruling from the CJEU on whether the strike was an extraordinary circumstance. If any of the courts should refer the question to the CJEU, the proceedings could take several years. If the CJEU rules against SAS, SAS could be liable to pay compensation to passengers affected by the strike.




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Risk area Risk Risk level Risk control measures fiscal year 2019

1 Market risks 1.1 Macro-economic trend Continual adaptation of SAS’ capacity offering and production.

1.2 Market and competition trends Implementation of SAS’ efficiency program and a more flexible production model.

2 Employee risks 2.1 Right skills Annual people reviews and successor identification.

2.2 Engagement Strengthened leadership, skills days, increased internal communication and transparency.

2.3 Processes and systems Follow-up of low and high-performing individuals. Documentation of internal processes.

2.4 Strikes Strengthen dialogue and relationships to increase consensus with the unions. Prioritized meetings for dialogue and negotiation in 2020 with the aim of securing long-term agreements.

3 Operating risks 3.1 Incidents and accidents Continuous internal monitoring and reporting to the Board.

3.2 Suppliers During 2019, SAS focused on closer collaboration with strategic suppliers, as well as monitored quality levels and efficiency.

3.3 Competitive costs and efficiency SAS has a cost differential compared with newly-started competitors. In fiscal year 2019, the efficiency program delivered slightly more than SEK 0.9 billion efficiency gains.

4 Sustainability risks 4.1 Environmental directives and requirements

Structured environmental work certified under ISO 14001 and containing measures for improving climate and environmental performance, and ensured compliance with applicable laws and regulations.

4.2 Anticorruption Implementation of a training program for employee groups at the greates risk of corruption.

4.2 Human rights Ongoing requirements updates and monitoring of subcontractors.

5 Legal and political risks 5.1 Political and regulatory risks SAS conducts active dialogues with the political systems and industry organizations (IATA) to obtain early information about regulatory changes and to influence decisions. Together with the industry, SAS has promoted air travel’s importance for business and society. SAS is analyzing the legal, financial and commercial effects of Brexit, and is collaborating with decision-makers nationally and in the EU. The UK is an important market for SAS, and it is crucial to the entire airline industry that a transition period or a new air traffic agreement with the same conditions as the current one is in place before the planned exit in January 2020.

5.2 Crime and fraud Continuous improvement of SAS’ capabilities for proactive identification and prevention of potential criminal and fraudulent activity.

5.3 Legal and insurance risks Development of policies and training to ensure compliance with various rules and laws. Continual monitoring of laws and policies. Legal counsel and participation in contract processes for minimizing contractual risk. Securing complete insurance protection of operations and employees.

6 Financial risks 6.1 Liquidity risk and refinancing Follow-up and forecasting financial preparedness. Continuous discussions with banks and financial backers aimed at managing maturing borrowings and leases.

6.2 Exchange rates Currency hedging in line with SAS’ financial policy and monitoring the currency market.

6.3 Interest rates Fixing rates in line with SAS’ financial policy and monitoring the interest-rate market.

6.4 Jet-fuel price and emission rights Jet-fuel hedging in line with SAS’ financial policy and monitoring the jet-fuel price trend.

6.5 Counterparty losses SAS’ counterparty risks are managed in line with SAS’ financial policy.

7 IT 7.1 Operational reliability and dependability Continual improvement of incident- and problem-handling procedures. Focus in fiscal year 2019 on reducing IT problems that affect the SAS website, planning system and management of cyber attacks.

7.2 Cybercrime Continuous improvement of SAS’ capabilities for proactive identification and prevention of potential cybercrime, by using both pro-cesses and automated tools.

8 Other events 8.1 Extraordinary events Increase cost flexibility to reduce costs in the case of reduced demand.

8.2 Brand and reputation Monitoring information pertaining to SAS.

Low risk Medium risk High risk

RISK MANAGEMENTReport by the Board of Directors



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The underlying objective of risk management is to create the optimal preconditions for growing value for shareholders and other stakeholders. All organizations are exposed to risks and uncertainties, which entail both risks and opportunities. SAS is exposed to a large number of general and more company-specific risks that can impact operations both negatively and positively.

Risk management at SAS is about positioning SAS in relation to, known and unknown, possible events with the aim of minimizing the potential negative effects should an unexpected event occur. Overall risks are monitored and identified centrally and followed-up through policies that aim to control the risks. Flight safety is always top priority at SAS.

Value is maximized for shareholders and other stakeholders in SAS, when strategies, goals and their strategic priorities are set to ensure an optimal balance is reached in terms of growth, profitability and their related risks, as well as that resources are used efficiently and sustainably. Accordingly, risk management and risk assessment are of fundamental importance for ensuring SAS’ long-term sustainable profitability.

1. MARKET RISKS1.1 Macro-economic trendDemand in the airline industry is correlated to trends for economic growth and exports. SAS’ primary operations are located in Scandinavia and about 70% of passenger revenue stems from Scandinavia. No single country accounts for more than 30% of SAS’ passenger revenue, which limits SAS’ exposure to individual countries. As a region, however, demand in Scandinavia is crucial for SAS. Over the past few years, the Scandinavian economies have been more stable than other parts of Europe, which has contributed to a positive trend in the demand for flights. According to the OECD, real GDP is estimated to increase 2.4% in Norway, 1.4% in Denmark and 1.2% in Sweden during 2020. SAS’ exposure to events in individual markets can be partly offset by the flexibility in the company’s aircraft fleet through the use of smaller aircraft as well as returning aircraft on expiring operating lease agreements.

1.2 Market and competition trendsThe airline industry is subject to intense competition from new companies that enter the market and existing airlines that can easily reprioritize capacity to Scandinavia. Changed customer behavior, and increasing numbers of LCCs and existing airlines moving capacity to SAS’ home market, may lead to intensifying competition.

In fiscal year 2019, the competition intensified and the capacity growth accelerated. Measured in the number of seats offered, capacity to, from and within Scandinavia increased 1.0% during fiscal year 2019.

To meet, and prepare itself in relation to changed competition, SAS is also streamlining its production platforms and differentiating the product offering with the aim of strengthening competitiveness.

OPERATIONAL AND FINANCIAL SENSITIVITY ANALYSIS BASED ON OUTCOME FOR FISCAL YEAR 2019

Airline operationsOperating

income, MSEK

RPK, ±1% ±302

Load factor, ±1% ±408

Passenger revenue per RPK or ASK (yield & PASK), ±1% ±355

Unit cost (CASK), ±1% ±405

Jet-fuel price, ±1% ±88

2. EMPLOYEE RISKS2.1 Right skillsBoth the airline industry as a whole and SAS in particu-lar are undergoing major structural changes, which set new requirements for the organization and its compiled competence. For example, SAS has increased the degree of sourcing and developing services together with business partners where it is relevant. Increasing digitalization is also setting new demands on organ-ization, management, and competence. SAS actively promotes access to the right skills and resources, and utilizes processes and systems to leverage internal resources and to identify any faults.

To ensure efficient succession, the senior manag-ers have identified short- and long-term successors for 52% of all positions. With time, the aim is secure succession to 80% with internal successors and to 20% through actively seeking external competence. During fiscal year 2019, the Aircraft Management Program, introduced by SAS in 2018 to secure




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competence and to make the industry attractive for young engineers, has been completed and the partici-pants have now received permanent positions. Together with the industry associations in the respective coun-tries, among others, we are continuing the program to encourage more young people to train as flight techni-cians, a skills area where we need to secure succession.

Over the year, we have continued our competence enhancement program through actions including a mentor program for new pilot recruitments, and a staff and leadership program based on our manager and employee models. Our focus is on managing SAS’ changing operating environment and raising compe-tence to secure long-term succession.

2.2 EngagementSAS continuously measures employee engagement and motivation. 2019 was the second fiscal year that a new measurement system for employee engagement was used. Use is steadily increasing and the response rate is rising, which is very positive.

The system enables SAS to check employee engage-ment on a quarterly basis. Problems can thus be identified earlier and be taken care of, and local teams can work on issues and activities that are relevant to them, and directly affect their work situation, in order to strengthen engagement. Average employee engage-ment totaled 59 in 2019, which is four percentage points higher year-on-year. The results vary between employee groups. The trend in 2019 was primarily negative among cabin crew, while other employee groups noted stable or rising engagement. SAS can clearly see how business-strategic decisions and oper-ational challenges affect employees differently, and can

thus implement the correct improvement measures more quickly.

To strengthen engagement, SAS works with the One SAS strategy – A great place to work, which focuses on reducing distances between different employee groups, building faith in the future, strengthening relations with operational employee groups, becom-ing a more sustainable employer and ensuring that our leaders have the right preconditions. Work con-tinued during the year on the two major projects started in 2018 in Flight Operations and Maintenance Production, and a positive trend has been noted in the latest employee surveys.

In 2019, SAS organized forums such as the Learning Lunch and the SAS Awards, where exceptional perfor-mance is rewarded.

SAS uses clear targets and employee influence in performance development, which aims to develop employee engagement and future leaders, and to boost SAS’ continued attractiveness as an employer.

2.3 Processes and systemsSAS uses systems and processes for efficient person-nel management and to support securing skills needs and the succession order. SAS is gradually implement-ing Lean principles in its processes with clear action plans based on shared targets, which are categorized under SQDEC (Safety, Quality, Delivery, Employees and Cost), and which can be followed up across the entire operations. SAS conducts a yearly analysis of internal skills with the aim of leveraging the greatest talents and making adjustments where improvements are needed. The annual process has identified talents

and many employees have over time been given new positions or increased responsibility. During the year, the implementation was started of a new People plat-form to support leaders with the task of developing and securing the company’s skills needs moving forward. The new platform was launched in December 2019.

2.4 StrikesHistorically, the airline industry has been severely affected by labor market disputes. Through transparent and open dialogue with all labor unions and groups of employees, SAS endeavors to increase understanding of the shared challenges and the need to secure more efficient operations and, thereby, a safe and stimulating work environment.

SAS encountered a pilot strike in 2019 caused by its own employee groups. Moreover, SAS and other airlines’ activities were affected on a number of other occasions by small local labor conflicts in other coun-tries. In 2019, SAS signed agreements with the pilot associations in Norway, Denmark and Sweden, which extend for three years from 2019 to 2021, with an option to terminate after two years.

3. OPERATING RISKS3.1 Incidents and accidentsSafety is a top priority at SAS. SAS’ safety culture builds on the foundation comprised by the values, skills and experience of all employees throughout the organization.

The safety culture entails continuously striving to improve safety by encouraging SAS employees to actively learn, adapt and modify individual and organi-zational behavior to reduce exposure to risk.




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SAS’ management is well versed in the safety efforts at SAS and is involved in daily safety activities.

SAS has a safety policy that is documented, communi-cated and implemented in its operations.

SAS has a longstanding and well-implemented Safety Management System (SMS), which has received regu-latory approval. SAS also meets IATA’s safety standard, IOSA – IATA Operational Safety Audit, which certifies that operations meet the most stringent flight safety regulations in the market.

Flight safety continues to be extremely high on a global basis and, statistically, the risk of an accident is very low. However, the aim of flight safety efforts is not to remain at these low percentages; it is to keep the total number of accidents at the same level despite an expected doubling in air travel until 2035.

Historically, safety efforts have been based on mini-mizing the risk of something occurring or recurring, by learning from previous incidents and accidents, and through conducting diligent investigations and analy-ses of incidents and accidents to minimize the risk of recurrence.

In addition to more traditional methods of preventing accidents and incidents through reactive measures to prevent recurrence, SAS also has a more modern safety management system (SMS) that is also based on analyzing trends to thereby identify safety issues before they result in an incident or accident. The identification of potential incidents and accidents is one method of working proactively with flight safety.

The work also entails learning from the risks at other departments, other airlines, etc., and implementing processes and procedures to ensure that serious accidents and incidents do not occur.

The SMS provides SAS with the possibility of acting more proactively with its safety efforts, prioritizing effectively and ensuring the entire organization pro-motes passengers’, employees’ and the company’s safety.

All of the operating platforms used by SAS are required to be IOSA certified and hold a European traffic license. To ensure corresponding safety levels at the wet-lease companies that together with our own flight operations comprise the operational platforms, SAS has set the following requirements:• Prior to contract, the operator’s safety efforts are

analyzed;• Monthly safety summaries and continuous deviation

reports are sent regularly to SAS management;• Safety follow-up meetings are held quarterly;• SAS training pilots conduct inspection flights and

perform observations in simulator training sessions;• Annual audits are carried out by SAS; and• Together with our business partners, seminars are

conducted that showcase separate areas and share SAS’ experience.

SAS only initiates code-share collaboration with other airlines that have IOSA certification or that have sub-mitted to a comparable audit.

Safety activities and risk levels in fiscal year 2019In fiscal year 2019, SAS has continuously monitored and measured daily risk levels in flight operations, ground operations, technical maintenance and aviation security in a hierarchical system of objective safety per-formance indicators.

To aid follow-up of flight safety on a departmental basis and for the various operational platforms, SAS uses an operational flight safety tool known as Enplore. This tool has improved the capacity for identifying trends and correlations, which in turn leads to SAS dealing more proactively with safety-related risks.

The trend was stable during FY 2019, and the number of medium-level events was on a par with preceding years.

RISK INDEX

Operations Low Medium High

Flight Operations, % 2.76 0.001 0

Ground Operations, % 1.41 0.000 0

Technical Operations, % 0.33 0.004 0

Security, % 0.45 0.0005 0

Total for FY 2019 as a % of the No. of flights 4.94 0.006 0

Total for FY 2018 as a % of the No. of flights 4.37 0.007 0

Low: Events that occurred where the remaining safety margin was extremely effective. Normal monitoring is the only action required.

Medium: Events that occurred where the remaining safety margin was limited. Risk evaluation plus appropriate actions were adopted for continued operations.

High: Events that occurred where the safety margins were minimal or ineffective. This group includes more serious events (such as engine failure during takeoff). Such incidents must be investigated immediately to identify whether they are isolated incidents and do not affect continued airline operations.




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3.2 SuppliersDependence on external suppliers across all opera-tions is increasing in pace with changes in the airline industry and development of the operating model at SAS. This applies equally to operations such as ground handling and wet-leasing, and to administrative func-tions such as customer service and accounting. SAS conducts continual reviews of its supplier base, identi-fying the most operation-critical suppliers. SAS has an established steering model that clarifies responsibil-ities, risks and areas for improvement, as well as how any deviations should be managed. Responsibility for ongoing follow-up of critical suppliers has been central-ized and standardized. All suppliers to SAS must meet requirements for sustainability and social responsibil-ity in line with SAS’ Supplier Code of Conduct. This is checked during procurement.

3.3 Competitive costs and efficiencyFor profitable long-term operations, SAS must have a competitive cost structure and be highly efficient. SAS therefore implemented major structural cost-reducing measures and realized efficiency enhancements of SEK 6.7 billion between 2013 and 2019. In fiscal year 2017, SAS implemented measures in its efficiency program of SEK 3.0 billion to be implemented during 2017–2020. During fiscal year 2019, the measures contributed MSEK 855 in cost reductions. Once the measures have been implemented, SAS will be a more flexible and productive airline. However, SAS will continue to implement further efficiency measures beyond 2020 and the aircraft order that will create a single-type fleet by 2023 will provide further opportu-nities for SAS to enhance its operational efficiency.

4. SUSTAINABILITY RISKSSAS has integrated its sustainability work into its management system, which has structured processes for mitigating all risks and possibilities in the field of sustainability.

4.1 Environmental directives and requirementsDifferent laws and regulations impose requirements for reduced climate and environmental impact, including through restrictions on noise levels and greenhouse gas emissions. All laws and regulations in the field of the environment and the climate are handled by SAS’ management system which, as regards the environ-ment, is ISO 14001:2015 certified.

SAS works continuously on sustainability issues to ensure compliance with national and international requirements. SAS measures factors such as its eco-efficiency by measuring total carbon emissions, which fell 2.5% during the fiscal year. The improvement is mainly a result of aircraft fleet renewal, ongoing effi-ciency efforts and the seven-day strike during the year, which reduced the number of flights.

4.2 AnticorruptionDuring the year, SAS conducted a number of activities to prevent porential risks that may exist. This includes, for example, training programs for prioritized employee groups and control measures aimed at addressing the requirement that all employees observe the SAS Code of Conduct as well as applicable laws.

4.3 Human rightsSAS is a major purchaser of products and services from a large number of subcontractors. SAS affiliates itself with the UN Global Compact, placing a number

of requirements that all subcontractors share SAS’ perception and requirements regarding human rights, for example, SAS requires that employees at subcon-tractors have proper market-based employment terms and the right to organize into unions. SAS prioritizes subcontractors that share the basic principles of the UN Global Compact.

5. LEGAL AND POLITICAL RISKS5.1 Political and regulatory risksSAS and the airline industry in general are exposed to various types of political and regulatory decisions, in our home markets and abroad, that can significantly impact operations and SAS’ economy both positively and negatively. SAS monitors developments in the political arena and, through active dialogue and nego-tiations with public agencies and organizations, strives to influence development both individually and through national and international industry bodies.

Aviation taxes and infrastructure fees Sweden and Norway have both introduced excise taxes on air travel. While the taxes are called environmental taxes, they have no connection with emissions or any climate protection measures. Emission-linked taxes or regulations are also being discussed in Denmark. National aviation taxes create a patchwork of cost- driving taxes that negatively impact profitability, increase the complexity of agreements at a global level and can affect future investment possibilities for areas including biofuel.

The fee increases linked to airport infrastructure have a negative impact on profitability if they cannot be recouped from customers.




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BrexitOn 29 March 2017, the UK announced that it would leave the EU under Article 50 of the Lisbon Treaty. This means that new trade agreements will be negotiated between the EU and the UK, in air traffic as well. The cur-rent air traffic agreement in the EU was created in 1992, and has been crucial for increased mobility and accessi-bility for the business sector and citizens in the EU.

Following the UK election on 12 December, the UK parliament has restarted processing of the legislation for the UK to exit the EU on 31 January 2020. The tran-sition period will commence on 1 February 2020 and continue until 31 December 2020. During the tran-sition period, essentially the same rules will apply as prior to the UK’s exit.

To ensure the continuance of air travel between the EU and the UK in the event of a no-deal Brexit, the EU has prepared a new civil aviation regulation which has been adopted by the member states. The regulation enables continued air travel between the EU and the UK. SAS has ensured that the required applications and per-mits under the new regulation have already received approval and expects air traffic to continue without interruption in the event of a no-deal Brexit.

5.2 Crime and fraudSAS may be exposed to crimes that can have both an economic and intangible impact. A substantial portion of SAS’ ticket sales are conducted online using credit cards, which entails a risk of credit card fraud and other cybercrimes. If credit card details and other personal information pertaining to SAS’ customers should fall into the wrong hands as a result of, for example, hack-ing in conjunction with ticket sales, there is a risk that

this could harm customer confidence in SAS. Moreover, there is a risk that payments are made for SAS tick-ets with credit cards that have been acquired through fraud or other criminal means, which entail that SAS is held liable to repay such payments to the cardholder or credit card company.

SAS analyzes these risks on an ongoing basis and ensures that internal controls and procedures are in place to identify and prevent potential crime and fraud.

5.3 Legal risksSAS flies and operates in many different countries, which means that SAS has to comply with a large number of laws and regulations. The breadth of SAS’ operations and the large number of contractual relations mean that SAS is, and may be in the future, involved in legal processes and arbitration proce-dures as either plaintiff or defendant. SAS may also be exposed to crimes that can have both an economic and material impact. At 31 October 2019, SAS was involved in a number of legal processes, the most important of which are described in more detail on page 52.

SAS’ legal division ensures compliance with relevant laws and rules, conducts training and establishes internal policies, processes and rules including the SAS Code of Conduct, which establishes what ethi-cal rules and guidelines all employees in SAS are to observe. SAS continuously monitors how changes in laws and regulations impact operations at SAS and implements new or updated procedures, guidelines, etc. Contractual risks in relation to external parties are minimized through legal counseling and participation in contractual processes. SAS has insurance cover for its operations and personnel to protect the company financially from unforeseen events and risks.

6. FINANCIAL RISKSSAS is exposed to various types of financial risks. Allrisk management is performed centrally pursuant tothe financial policy adopted by the Board.

Financial risks pertaining to changes in exchange rates, interest rates and fuel prices, are hedged with derivatives, which aim to counter short-term negative fluctuations and provide scope for adapting operations to longer-term changes in levels. Another aim of SAS’ hedging strategy is to enable SAS to act quickly when changes in exchange rates, interest rates and fuel prices are advantageous. More information is available in Note 27.

6.1 Liquidity risk and refinancingThe cash flow from SAS’ airline operations follows clear seasonal trends. Since passenger revenue is recog-nized when SAS or another airline provides the trans-portation, this means that seasonal variations impact cash flow and earnings differently. SAS also has several different financial instruments issued, as well as 70 aircraft on operating leases and 33 aircraft on wet lease contracts that are continually maturing.

The target is a financial preparedness of at least 25% of fixed costs. SAS prepares a rolling liquidity fore-cast that is used as a basis to ensure that financial preparedness is maintained and to identify refinanc-ing needs. SAS uses bank loans, bonds, subordinated loans, hybrid bonds and leasing as sources of funding.

SAS is in continual discussion with banks and finan-ciers regarding refinancing of SAS’ loan and leasing maturities. During the fiscal year, financial prepared-ness decreased. In April 2019, a convertible subordi-nated loan of MSEK 1,574 was repaid. Nevertheless,




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the financial preparedness trended stably over the year with the expected seasonal swings. The ratio was also positively affected by an issue of a subordinated hybrid bond in October 2019. At 31 October 2019, financial preparedness amounted to 38% (42).

6.2 Exchange ratesTransaction risk arises from exchange-rate changes that impact the size of commercial revenue and costs and thus SAS’ operating income. As a consequence of aircraft and jet fuel being priced in USD and of interna-tional operations, SAS is considerably exposed to price changes in several currencies. The USD is SAS’ great-est deficit currency, and NOK is SAS’ greatest surplus currency.

In fiscal year 2019, the SEK weakened 5% against the USD, which was largely attributable to the difference between the FED’s and the Riksbank’s key interest rates. This had a net negative impact on SAS’ revenue and costs of MSEK -1,060. On the other hand, the SEK has strengthened 4% against the NOK, which was due to investors’ interest in the NOK cooling, despite healthy fundamentals in the Norwegian economy. Over the year, the SEK/NOK exchange rate had a net posi-tive effect on SAS’ revenue and costs of MSEK 81.

Currency exposure is managed through continuously hedging 40–80% of the SAS’ surplus and deficit cur-rencies based on a 12-month rolling liquidity forecast.

By hedging the USD and NOK, SAS has postponed the negative effects of the exchange-rate changes. The exchange-rate trend had a positive impact on SAS’ revenue of MSEK 1,180 in fiscal year 2019. The change from translation of working capital and currency

hedges amounted to MSEK 196. The net effect of the changes in exchange rates and the effects of imple-mented hedges on SAS’ income before tax was MSEK -593 (333).

At 31 October 2019, SAS’ hedging ratio totaled 44% of its anticipated USD deficit for fiscal year 2019. In terms of the NOK, 65% of the anticipated surplus for the next 12 months was hedged. Hedging is mainly performed through currency forward contracts to prevent earn-ings-related revaluation effects pertaining to financial assets and liabilities. SAS’ USD denominated loans are hedged against the SEK to reduce currency risk in the loan portfolio.

CURRENCY BREAKDOWN SAS FISCAL YEAR 2019MSEK

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

USD DKK EUR JPY GBP SEK NOK Other

Revenue Expenses Net

NET EARNINGS EFFECT OF EXCHANGE-RATE CHANGES, FISCAL YEAR 2019

SAS total MSEK

1% weakening of SEK against USD -124

1% weakening of SEK against NOK 58

1% weakening of SEK against DKK 1

1% weakening of SEK against EUR 8

1% weakening of SEK against JPY 5

1% weakening of SEK against GBP 6

Currency risk for aircraft investmentsSAS uses currency forwards to hedge part of the order value for aircraft it has on order to limit the currency risk. Any currency forwards outstanding are terminated on delivery under leases, both operating leases and JOLCO (Japanese finance leases with a purchasing option). By entering into lease agreements for 14 of the 52 Airbus A320neos on firm order, SAS has decreased the currency exposure for Airbus A320neo deliveries. SAS has also currency hedged a portion of its aircraft order for eight Airbus A350s with delivery from 2019.

6.3 Interest ratesThe airline industry is capital-intensive and on the closing date, SAS had MSEK 11,283 (10,092) in interest -bearing liabilities, which exposes the company to interest-rate changes.

Financial policy at SAS regulates the proportion between floating and fixed-interest rates with the objective that gross financial debt has a tenor of two years with a permitted interval of 1–4 years. The average fixed-interest period for gross financial debt, including the hybrid bond, was 3.2 (2.7) years as of October 2019.




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6.4 Jet-fuel price and emission rightsJet-fuel priceJet-fuel costs comprise the single largest expense item for SAS and in fiscal year 2019 amounted to around 21% (19) of SAS’ operating expenses (including leases, depreciation and amortization). SAS hedges jet-fuel costs to counter short-term negative fluctuations.

SAS’ policy for jet-fuel hedging states that jet fuel should be hedged at an interval of 40–80% of anti-cipated volumes for the coming 12 months. The policy also allows hedging of up to 50% of the anticipated volumes for the period, 13–18 months.

Market prices for jet fuel fell sharply during fiscal year 2019 and averaged 5% lower than the preceding fiscal year. Jet-fuel prices decreased gradually during the year from about USD 750/tonne to around USD 630/tonne at the end of the fiscal year. The lower jet-fuel price meant that jet-fuel costs, adjusted for currency effects, decreased 6% year-on-year. Hedge effects had a negative impact of MSEK 1,557 year-on-year.

Ahead of fiscal year 2020, SAS has hedged 62% of expected jet-fuel consumption.

HEDGING OF JET FUELUSD/MT

Q4-20Q3-20Q2-20Q1-20

658

620 613

580

659

629592

592

85%97%

48%

25%Fuel priceheadwind

Fuel price tailwind

% = hedge ratio

85% 88%

48%

25%

VULNERABILITY MATRIX, JET-FUEL COST FY 2020, SEK BILLION¹

Exchange rate SEK/USD

Market price 8.5 9.0 9.5 10.0 10.5

USD 500/tonne 7.4 7.8 8.2 8.6 9.1

USD 600/tonne 7.8 8.3 8.7 9.2 9.7

USD 700/tonne 8.5 9.0 9.5 10.0 10.5

USD 800/tonne 8.9 9.5 10.0 10.5 11.1

1) SAS’ current hedging contracts for jet fuel at the end of the quarter have been taken into account.

The jet-fuel cost in the statement of income does not include USD currency hedging effects. These effects are recognized under “Other” in Other operating expenses, Note 4, since cur-rency hedging is performed separately and is not linked specifically to its jet-fuel purchases.

Emission rightsSAS is a long-time supporter of the polluter pays prin-ciple. However, a prerequisite for this is that it is applied on equal terms and in a manner that does not distort competition. Furthermore, SAS is positive toward requirements for increased energy efficiency, which fit well with the company’s environmental targets. In fiscal year 2019, SAS’ emission rights expenses in the European EU-ETS emissions trading scheme totaled MSEK 247 (110). ICAO’s global economic instrument, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which aims to regulate

aviation’s carbon emissions from 2021, will be impor-tant for SAS’ emission costs going forward. While await-ing CORSIA, the European Commission has decided that EU-ETS should only include intra-Europe flights up until the 2020 calendar year. As yet, SAS is unable to assess the financial consequences of this instrument.

SAS secures emission rights for the expected short-fall to reduce financial exposure. Ahead of fiscal year 2020, SAS has secured 61% of its emission rights and expects the costs for the emission rights to increase in fiscal year 2020.

6.5 Counterparty lossesSAS is exposed to counterparty losses through credits, lease agreements and guarantees to external parties. This exposure is governed by SAS’ financial policy. No counterparty loss of any significance had any impact on SAS in the fiscal year. Net impairment of accounts receivable and recovered accounts receivable, as well as the impairment of other current receivables, had an earnings impact of MSEK -22 (-14) in fiscal year 2019.

Financial policy at SAS regulates how and in what manner SAS should act to reduce the risk of counter-party losses. SAS invests cash and cash equivalents in instruments with good liquidity or short maturity with credit ratings not lower than A3/P1 according to Moody’s, or A- according to Standard & Poor’s.

7. IT7.1 Operational reliability and dependabilitySAS is increasingly dependent on its own and its suppliers’ IT systems and procedures for efficient and secure operation of its website, reservation system, departure control, online bookings and income




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administration system, among other items. Such systems are often vulnerable to and can be disrupted or harmed by, for example, internal faults, sabotage, cyber-related fraud, computer viruses, software errors, physical damage or other events outside of SAS’ and its suppliers’ control. Disruptions could stem from configuration errors during upgrades or maintenance operations, and by the breakdown of systems following the upgrade of applications.

SAS is also dependent on IT and secure information flows in all parts of its operations, and through trans-parent processes and continual updates, SAS secures the confidentiality, correctness, accessibility and trace-ability of the information. This is also governed by a number of policies and safety solutions.

7.2 CybercrimeLike numerous other companies, SAS is exposed to various types of attacks on its IT system on a daily basis. Moreover, all of the services and products SAS offers are available online and are therefore subject to ongoing attempts at cyber-related fraud. Cybercrime organizations also target SAS’ IT systems, which con-tain critical information about SAS’ transport opera-tions, planning and passengers. There is always a risk that SAS’ cyber security measures might prove inad-equate or inappropriate for the purpose of preventing all attempts to compromise its IT system. The degree to which any extended or serious disruption to SAS’ IT system could impact SAS is uncertain and comprises a significant risk for SAS’ operations and financial performance.

Continuous improvement of SAS’ capabilities for proactive identification and prevention of potential

cybercrime through training, processes and automated tools has, however, enabled SAS to prevent any serious negative impact to operations.

8. OTHER EVENTS8.1 Extraordinary eventsAirline companies are impacted by extraordinary events around the world, such as natural disasters, terror attacks, conflicts and epidemics. Despite a number of terrorist attacks in Europe during the last years, the demand for flights have not been affected to any great extent.

SAS has a number of contingency plans in place to manage various catastrophes, and strives to increase production platform flexibility and the proportion of variable costs to be able to rapidly realign operations in the case of extraordinary events.

8.2 Brand and reputationIn fiscal year 2019 SAS carried approximately 30 million travelers. Demand for SAS’ services could be negatively affected if confidence in SAS and/or the airline industry should decrease.

SAS continuously monitors the confidence trend for SAS and the industry and works strategically to strengthen the SAS brand and reputation. SAS has established media and information policies aimed at ensuring that all information pertaining to SAS is correct and accurate. If inaccurate rumors are spread about SAS or if information is provided incorrectly, SAS endeavors to follow up and correct errors to minimize any negative impact on SAS’ general rating and posi-tion in the market.




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DIVIDENDS, DISPOSITION OF EARNINGS AND OUTLOOKDIVIDENDThe Board of Directors proposes to the 2020 AGM that no dividends be paid to holders of SAS AB’s common shares for fiscal year 2019. This is a result of SAS’s return on invested capital not exceeding the weighted average cost of capital.

PROPOSED DISPOSITION OF EARNINGSThe following Parent Company earnings are available for disposition by the AGM:

SEK

Hybrid bond 1,500,000,000

Retained earnings 1,083,449,392

Net income for the year - 56,555,172

Unrestricted equity, 31 October 2019 2,526,894,220

The Board of Directors proposes that the earnings be allocated as follows:

SEK

To be carried forward1 2,526,894,220

Total 2,526,894,220

1) Of which SEK 1,500,000,000 pertains to the hybrid bond.

SIGNIFICANT EVENTS AFTER 31 OCTOBER 2019 • No significant events occured after the reporting date.

OUTLOOK FOR FISCAL YEAR 2020• The uncertain economic outlook and emerging

slowdown in major economies will negatively impact customer demand.

• The continued weakness of the Swedish and Norwegian krona against the US dollar and the Euro also remains a challenge.

For the forthcoming year, SAS therefore foresees significantly lower market growth, both from a demand and supply perspective.

Given these market conditions together with higher costs for new aircraft, increased training volumes as well as the implementation of IFRS 16, SAS is expected to deliver an EBIT margin before items affecting comparability of 3-5% for fiscal year 2020.

For the same reasons, we expect an increased loss for the first quarter of fiscal year 2020 compared to last year.

The outlook is based on the following preconditions and assumptions at 31 October 2019:• Jet-fuel prices amount to USD 590 MT• An exchange rate of SEK 9.8 against the USD

and SEK 1.08 against the NOK• Capacity growth (ASK) of 5%• Efficiency measures of SEK 0.6 billion• The outlook is based on no unexpected

events materializing.




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CORPORATE GOVERNANCE REPORTThis Corporate Governance Report for fiscal year 2019 has been prepared pursuant to the Swedish Annual Accounts Act and the Swedish Corporate Governance Code (the Code).

PARENT COMPANYSAS AB, which is the Parent Company for operations at SAS, is a Swedish public limited company headquar-tered in Stockholm, Sweden. Since July 2001, SAS AB has been listed on Nasdaq Nordic in Stockholm with secondary listings in Copenhagen and Oslo.

SAS’ LEGAL STRUCTURE1, 31 OCTOBER 2019

SAS Ground Handling Danmark A/S SAS Ground Handling Norge AS 100%SAS Ground Handling Sverige AB

SAS Norge AS

ConsortiumScandinavian Airlines SystemDenmark — Norway — Sweden

SAS Sverige ABSAS Danmark A/S

SAS AB

SAS Cargo Group AS 100%

Gorm Asset Management 100%

Scandinavian Airlines Ireland 100%

IMPORTANT REGULATIONS GOVERNING SASExternal rules:• Swedish legislation, EU regulations and laws set by other countries in

which SAS operates • The Swedish Corporate Governance Code (the Code)• Nasdaq Nordic in Stockholm and Copenhagen and the Oslo Børs’s

rule book for issuers • The Market Abuse Regulation• The recommendations issued by relevant Swedish and international

organizations – Flight safety regulations and certifications – Accounting rules

Internal rules:• The Articles of Association¹• The Information Policy• The Board’s work plan• The Board’s instructions to the President• The Code of Conduct¹• The Insider Policy

No breaches of the relevant stock exchange rules or of good stock market practices have been reported by Nasdaq’s Disciplinary Committee, the Oslo Børs or the Swedish Securities Council during fiscal year 2019.

1) Available for download at www.sasgroup.net

DEPARTURES FROM THE CODE SAS complies with the Code except in the following instances: • Meeting deliberations in SAS AB are held primar-

ily in Swedish and meeting materials are available in Swedish. In view of the above, the Board believes that any one of the Scandinavian languages may be freely used at shareholders’ meetings in the company in view of the similarity of the three Scandinavian languages.

• The slides in the President’s presentation attached to the minutes are written in English, which departs from clause 1.4 of the Code. The President’s presentation at meeting deliberations is held in Swedish, but SAS has decided to provide the presentation material in English (available for download from the website) to enable the broader capital market to understand the President’s presentations at shareholders’ meetings.

1) Operating companies.

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SAS’ SHAREHOLDERS AND SHARESAS maintains ongoing dialogues with capital markets on questions regarding the SAS Group’s performance, strategic position and growth possibilities. No major changes were implemented in the corporate govern-ance principles in 2019. During the year, most listed airlines noted significant decreases in their share prices. SAS’ common share also followed a negative trend and declined 26% over the fiscal year.

OWNERSHIP, CONTROL AND SHARE CLASSESSAS AB has three classes of shares: common shares, subordinated shares and class C shares. At 31 October 2019, there were 382.6 million common shares issued with a quotient value of SEK 20.10, representing a reg-istered share capital of MSEK 7,690.

There are no subordinated shares or class C shares issued or outstanding. Common shares and subordi-nated shares entitle the holders to one vote each. Each class C share entitles the holder to one-tenth of a vote.

The maximum number of common shares and subordi-nated shares that may be issued is limited to a number that corresponds with 100% of the company’s share cap-ital. The maximum number of class C shares that may be issued is limited to 5% of the share capital. The common shares provide shareholders the rights set out in the Swedish Companies Act and the Articles of Association.

Subordinated shares provide shareholders the right to participate in and vote at the company’s shareholders’ meetings. Subordinated shares do not entitle share-holders to dividends or participation in bonus issues. If subordinated shares are redeemed or the company is dissolved and its assets distributed, holders of

subordinated shares are treated as holders of common shares and receive an equal share in the company’s assets, although not at an amount higher than the quo-tient value of the subordinated shares index-adjusted from the first date of registration of the subordinated shares until the date of the payment of the redemption amount or the date of the distribution with an interest --rate factor corresponding to STIBOR 90 days plus two percentage points. For more information on subor-dinated shares, see Note 21. The share price perfor-mance of the common share is presented on page 42.

Class C shares do not entitle the holder to dividends. If the company is dissolved, class C shares entitle the holder to equal parts of the company’s assets as the company’s common shares, however not for an amount that exceeds the share’s quotient value. The company’s Board has the right to reduce the share capital by redeeming all class C shares. If such a decision is taken, class C shareholders are obligated to redeem all of their class C shares for an amount correspond-ing to the quotient value. The redemption amount

is to be paid immediately. Class C shares held as treasury shares by the company will, on demand by the Board, be eligible for conversion to common shares. Thereafter, the conversion is to be registered with the Swedish Companies Registration Office without delay and is effective when it has been registered with the Register of Companies and noted in the Central Securities Depository Register.

PROTECTION OF SAS’ AIR TRAFFIC RIGHTS IN THE ARTICLES OF ASSOCIATION For aviation policy reasons, SAS’ Articles of Association authorize, in part, the mandatory redemption of common shares by means of a reduction of share capital and, in part, should redemption not be possible or be adjudged inadequate, an option to issue sub-ordinated shares for subscription with the support of previously issued warrants.

IF TRAFFIC RIGHTS ARE THREATENED SAS CAN:• Mandatorily redeem common shares• Issue subordinated shares

Internal audit – Internal control

Shareholders’ meeting C. Nomination Committee A.Auditors B.

Audit Committee E.

Reports

Appoints

Board of Directors D. Remuneration Committee F.

President & Group Management G.

SAS’ CORPORATE GOVERNANCE STRUCTURE

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A precondition for these actions is an assessment by the company’s Board that a direct threat exists against the air traffic rights of the company or any of its subsidiaries when the company or its subsidiaries infringe or risk infringing provisions on ownership and control in bilateral aviation agreements or in laws or regulations pertaining to permits for air traffic in the EU/EEA. Furthermore, for aviation policy reasons, the Articles of Association contain certain suitability and qualification requirements for Board members to ensure that the Board will at all times have the composition it needs to ensure that the company and its subsidiaries are able to retain their air traffic rights. These requirements include citizenship, domicile and knowl-edge and experience of the social, business and cultural conditions prevailing in the Scandinavian countries.

Beyond these requirements and the regulations contained in the Articles of Association, there are no restrictions or voting rules pertaining to the appointment or removal of Board members.

Mandatory redemptionIf the Board assesses that there is a direct threat to the company’s traffic rights, it may decide to mandatorily redeem a sufficient number of common shares not owned by shareholders domiciled in Denmark, Norway or Sweden along with common shares that are controlled, directly or indirectly, by a person or company outside of these three countries, so as to ensure continued Scandinavian own-ership and control. Primarily, such mandatory redemp-tion of common shares is performed on shares owned or controlled by a person or company outside the EU/EEA. Prior to redemption, the shareholders are given an opportunity to sell their common shares voluntarily within a prescribed period. Redemptions are made subsequently without refund to the shareholder since the reduction is to be transferred to the company’s statutory reserve.

Subordinated sharesShould the Board deem the action of redeeming common shares not possible or inadequate, the Board may propose a shareholders’ meeting to decide whether to issue subordinated shares in such number so as to safeguard continued Scandinavian ownership and control. Such a decision must be approved by at least half of the votes cast at the meeting. The sub-ordinated shares thus issued are subscribed for with the support of previously issued warrants, which are currently held by a subsidiary of SAS AB but which the Board of SAS AB has the right to decide to transfer to one or more appropriate legal entities domiciled in Denmark, Norway or Sweden as soon as this is judged necessary for aviation policy reasons. In total, there are 75,000 warrants issued, which provide entitlement to subscription for a total of 150,000,000 subordinated shares. This would increase the company’s share cap-ital by a maximum of SEK 3,015,000,000. As soon as the threat no longer exists, the Board shall ensure that the subordinated shares thus issued are redeemed.

OWNERSHIP AND CONTROLOn 31 October 2019, SAS AB had a total of 61,918 shareholders. The major shareholders are the Swedish and Danish governments, who together represent 29% of the votes. More information about the share and the ownership structure is available on page 42 in the SAS Annual Report Fiscal Year 2019.

No restrictions exist in the Articles of Association con-cerning the voting rights of shareholders at shareholders’ meetings and, pursuant to the Swedish Companies Act, shareholders may vote for the entire number of shares they own or represent by proxy. Nor are there any special plans, such as employee-benefit plans or the like, through which company or Group employees own shares with

restricted voting rights. SAS AB has no knowledge of any agreements between shareholders that would restrict the capacity of shareholders to vote at a shareholders’ meeting or their right to freely transfer such shares.

Effects of a public takeover bidSAS is currently party to a number of agreements in which the counterparties are entitled to terminate the agreement, in the event of changes in the majority stake or control of the company.

A. NOMINATION COMMITTEEThe Nomination Committee represents shareholders of SAS and is appointed by the AGM and tasked with preparing the meeting’s resolutions on nomination and remuneration issues, as well as matters of procedure for the next nomination committee. An instruction for the Nomination Committee was adopted in conjunction with the 2019 AGM.

The Nomination Committee is tasked with making pro-posals for the election of the Chairman of the AGM, the number of Board members and Directors’ fees, broken down among the Chairman, Vice Chairman, other Board members and any remuneration for work on Board com-mittees, election of Board members and Chairman of the Board, election of the company’s auditors, auditors’ fees and the Nomination Committee ahead of the next AGM.

NOMINATION COMMITTEE, SIX MINUTED MEETINGS (REFERS TO THE PERIOD 13 MARCH 2019 TO 30 JANUARY 2020)

Member Representative of Votes, %Votes, %

31 October 2019Åsa Mitsell, Chairman

Swedish Ministry of Finance, for the Swedish government 14.8

Peder Lundquist Danish Ministry of Finance, for the Danish government 14.2

Jacob Wallenberg Knut and Alice Wallenberg Foundation 6.5Gerald Engström Gerald Engström and Färna Invest AB 4.0Carsten Dilling Chairman of the Board –

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Issues discussed in the Nomination Committee Since the AGM 2019, the Nomination Committee has evaluated the Board’s work, qualifications and com-position. Diversity, breadth and the gender balance have also been discussed. Since the 2018 AGM, the Chairman of the Board has participated on the Committee, and the result of the evaluation of the Board is made available to the Committee.

At least one meeting with the Board and the Group CEO must be held before the Committee submits its recommendations to the AGM.

The Committee’s recommendations are published in the notice calling the AGM, on the company’s website and at the AGM. Committee members received no fees or other remuneration from SAS for their work on the Nomination Committee.

When required for carrying out its assignment, the Committee utilizes recruitment consultants and other outside consultants, with SAS defraying the cost. B. AUDITORSThe auditors are elected by the AGM and tasked with scrutinizing the company’s financial reporting and the administration of the company by the Board and the President. An election was conducted to appoint an auditor at the 2019 AGM, whereby KPMG was elected for the period until the end of the 2020 AGM. The auditor in charge is Tomas Gerhardsson.

On two occasions during fiscal year 2019, the auditor in charge met with the Board, presenting the program for auditing work and reporting observations from the audit.

The auditor also met with the Audit Committee on five occasions. On one occasion during the fiscal year, the Board met with the company’s auditor without the presence of the President or any other representative of the company management.

KPMG submits an auditors’ report for SAS AB, the Group and an overwhelming majority of the sub-sidiaries. Over the past year, in addition to its auditing work, KPMG has performed advisory services for SAS Group companies in auditing-related areas as outlined in the table below. For more information about the auditors’ fees in fiscal year 2019, see Note 40.

Auditors’ fees MSEKAuditing services 5Other statutory assignments –Tax consultancy services –Other 1Total 6

C. SHAREHOLDERS’ MEETINGThe shareholders’ meeting is the highest decision- making body at SAS. At shareholders’ meetings of SAS AB, one common share is equal to one vote with no restrictions on the number of votes any one share-holder is entitled to cast at such a meeting.

The shareholders’ meeting may be held in Stockholm, Solna or in Sigtuna. Notice convening the AGM is issued no earlier than six and no later than four weeks prior to the meeting. Notice is published in daily news-papers and in Post- och Inrikes Tidningar in Sweden, and announced in press releases as well as published on the company’s website. SAS also e-mails notices to shareholders who have requested this service via the company’s website: www.sasgroup.net.

In fiscal year 2019, the Board convened the AGM on 13 March 2019.

The Articles of Association contain no special provisions regarding the election and discharge of Board members or regarding changes to the Articles of Association. As per 31 October 2019, no authority has been provided by the shareholders’ meeting to the Board empower-ing the Board to issue new common and/or preference shares or to buy back treasury shares.

NUMBER OF PARTICIPANTS AT AGMS 2013–2019

Shareholders represented No. of votes, million

0

50

100

150

200

250

0

50

100

150

200

250

2019201820172016201520142013

No. of votes, millionShareholders represented

RESOLUTIONS BY THE AGM ON 13 MARCH 2019• Adoption of statement of income and balance sheet, and disposition of

earnings.• Discharge from liability for Board members and President.• Appointment of Board members, Chairman of the Board, auditors and

Nomination Committee, and Instruction for the Nomination Committee.• Guidelines for remuneration of senior executives.• The AGM resolved to approve payment of fees for the period until the

end of the next AGM of SEK 630,000 to the Chairman of the Board and, when applicable, SEK 420,000 to the Board’s Vice Chairman and SEK 320,000 to each member elected by the shareholders’ meeting and to ordinary employee representatives. It was also decided that each deputy employee representative be remunerated with a study fee of SEK 1,000 per Board meeting and a meeting fee of SEK 3,500 for each Board meeting they attend. In addition to this remuneration, a decision was taken to pay a fee of SEK 80,000 to the Chairman of the Remuneration Committee and SEK 27,000 to each of the other com-mittee members, as well as SEK 100,000 to the Chairman of the Audit Committee and SEK 50,000 to each of the other committee members.

• Extension of the Consortium Agreement.• Amendments of the Articles of Association, introduction of C series

shares and removal of provisions regarding preference shares.• Implementation of a long-term incentive program.

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D. BOARD OF DIRECTORSThe Board’s work is governed by the Swedish Companies Act, the Articles of Association, the Code and the formal work plan adopted by the Board each year. The Board is ultimately responsible for SAS’ operations. This also includes risk management, regulatory compliance and internal control at SAS. The Board members are elected by the AGM for the period until the next AGM has been held. The Articles of Association stipulate that the Board of Directors should consist of six to eight members elected by the shareholders’ meeting. Following the 2019 AGM, the Board comprised eight elected members. In addition, the Board consisted of three employee representatives, each with two personal deputies.

The employee representatives are appointed by the SAS employee groups in Denmark, Norway and Sweden in line with governing legislation and special agreements. Deputies attend Board meetings only in the absence of an ordinary member. Except for employee representatives, no Board member is employed by SAS AB or any other company in the SAS Group. The elected Board members are appointed for the period until the end of the next AGM. No regulation exists that limits the period of time a Board member can serve in that capacity. The experience of the Board members and their independence in relation the owners of the company are disclosed on pages 73-74.

The average age of members is 57 and three of the eight members elected by the 2019 AGM are women. All members elected by the shareholders’ meeting are regarded by the Nomination Committee as being inde-pendent of the company and company management.

Moreover, all Board members are deemed to be independent in relation to major shareholders at 31 October 2019.

SAS AB meets the requirements of the Code regarding Board independence vis-à-vis the company, company management and the company’s major shareholders. The Nomination Committee applies Rule 4.1 of the Code and believes that the Code’s requirements for diversity, breadth and an even gender balance improved in accordance with the Committee’s ambition of achiev-ing an equal gender balance on the Board of Directors.

To streamline and enhance the work of the Board, there are two committees: • The Remuneration Committee• The Audit Committee

The members of these Committees are appointed by the Board. The main duty of the committees is to prepare issues for decision by the Board. These committees do not imply any delegation of the Board’s legal responsibilities. Reports to the Board on issues discussed at committee meetings are either in writing or given verbally at the following Board meeting.

The work on each committee follows written instruc-tions and a formal work plan stipulated by the Board. The General Counsel of SAS serves as the secretary to the Audit Committee. Minutes of Committee meetings are provided to all Board members. Remuneration for work on Board committees is determined by the AGM.

ATTENDANCE AT BOARD MEETINGS, NOVEMBER 2018–OCTOBER 2019

Name 21/111 3/12 28/1 26/2 13/32 9/4 27/5 11/6 26/83 23/94 24/10Carsten Dilling, ChairmanDag Mejdell, Vice ChairmanLars-Johan Jarnheimer, memberMonica Caneman, memberKay Kratky, member (from the 2019 AGM) – – – –

Sanna Suvanto-Harsaae, memberOscar Stege Unger, memberLiv Fiksdahl, memberJanne Wegerberg, employee representativeuntil May 2019 – – – –

Cecilia van der Meulen, employee representativeChrista Cerè, employee representative from start of June 2019 – – – – – – –

Endre Røros, employee representative Present Absent

1) Extra meeting by correspondence 2) Two meetings, of which one was the statutory meeting following the AGM 3) Two minuted meetings 4) Extra meeting

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THE BOARD’S WORK FISCAL YEAR 2019The Board’s work follows a yearly agenda with regular business items as well as special topics. The formal work plan regulates the division of the Board’s work between the Board and its committees and among the Board, its Chairman and the President. Working closely with the President, the Chairman of the Board monitors the company’s performance, plans Board meetings, takes responsibility for ensuring that the other mem-bers of the Board always receive high-quality informa-tion about the Group’s finances and performance, and ensures that the Board evaluates its work and that of the President each year.

The formal work plan also contains provisions for meet-ing the Board’s needs for information and financial reporting on an ongoing basis as well as instructions for the President and the company’s Board commit-tees. This process is evaluated each year, including the work of the Board. Evaluation of the Board is carried out by way of an annual survey that is compiled and then discussed by the Board.

The Board appoints from among its own members the members of the Board’s two committees: the Remuneration Committee and the Audit Committee. Between November 2018 and October 2019, the Board held 13 minuted Board meetings, including a statutory meeting and one by correspondence in addition to sev-eral informal meetings.

The President and other senior executives in the company attended Board meetings to make presentations and the company’s General Counsel served as the Board’s secretary.

MAIN ISSUES ADDRESSED AT BOARD MEETINGS

November December January February March April May June August September October

21 NovemberDecision on redemption of preference shares.

3 DecemberYear-end report for fiscal year 2018 with the proposed appropriation of earnings, the report from the external auditors, the budget for fiscal year 2019 and the outlook for 2020–2021, as well as revisions to the SAS Informa-tion Policy. A deci-sion was also taken to authorize man-agement to sign a ten-year lease regarding four A321LR aircraft. Evaluation of the Board’s and Presi-dent’s work.

28 JanuaryAdoption of the Annual Report for fiscal year 2018 and the appropria-tion of earnings. Decision to approve and implement the AGM’s proposed share-based in cen tive program for employees and ex tension of the consortium agree-ment. Adoption of guidelines for the re muneration of senior executives. Review of flight safety and sustain-ability work, in clu-ding occupational injuries and sick leave. Decision on notification of the AGM on 13 March 2019.

26 FebruaryAdoption of the first interim report for fiscal year 2019.

13 MarchStatus of negotia-tions with pilot unions.The Statu-tory Board meeting was held at the second Board meeting fol-lowing the AGM.

9 AprilStatus of negotia-tions with pilot unions. Decision to outsource IT infra-structure and data centers. Decision on the sale and leaseback of SAS’ A340 fleet. Adop-tion of the Board’s meeting schedule for fiscal year 2020.

27 MayThe auditors pre-sented their review of their work and of the interim report for the second quarter of fiscal year 2019.

11 JuneReview of SAS’ strategy and approval of SAS’ financial plan.

26 AugustContinued review of SAS’ strategy. Review of the Board’s formal work plan and instructions to the President and insider policy as well as follow-up of risk management, internal control and corporate gov-ernance. Adoption of the third interim report for fiscal year 2019.The signatory power of the SAS’ branch in Hong Kong was decided at the second meeting.

23 SeptemberA decision was taken to authorize a bond issue by the management.

24 OctoberAdoption of the budget for fiscal year 2020. Deci-sion taken regard-ing a one-time award for employ-ees. Evaluation of the Board’s and President’s work.

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E. AUDIT COMMITTEEArea of responsibilityThe Audit Committee monitors the company’s financial reporting as well as the effectiveness of its internal control, internal audit and risk management. The Committee keeps itself informed about the audit. The Audit Committee is responsible for preparing the Board’s quality assurance work regarding financial reporting. The Committee performs quality assurance through the discussion of critical auditing issues and


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the financial statements that the company submits. Issues discussed by the Committee include internal control, compliance, uncertainty in reported values, events after the closing date, changes in estimates and assessments, financial and legal risks, suspected irreg-ularities, and other matters affecting the company’s financial reporting.

The company’s external auditors attend all meetings of the Committee. Without otherwise impacting the responsibilities and obligations of the Board, the Committee is tasked with scrutinizing and monitoring the impartiality and independence of the auditor includ-ing paying particular attention to any non-audit-related assignments provided to the company by the auditor as well as assisting in the preparation of proposals regarding the election of auditors and auditors’ fees for resolution at AGMs.

Appointment of membersThe Board appoints members of the Audit Committee. All members of the Audit Committee are independ-ent in relation to SAS, the company management and the shareholders in line with the Code. Besides the Committee Secretary and the external auditor, the SAS Group CFO and one employee representative and, as required, representatives from SAS’ accounting unit attend Committee meetings.

THE AUDIT COMMITTEE’S WORK FY 2019 — FIVE MINUTED MEETINGS

Meeting date 3/12 28/1 26/2 27/5 26/8Monica Caneman (Chairman)Lars-Johan JarnheimerOscar Stege Unger

Present Absent

F. REMUNERATION COMMITTEEArea of responsibilityThe Remuneration Committee prepares issues for the Board’s decision vis-à-vis remuneration policies, remuneration and other employment terms for senior executives with a view to ensuring the company’s access to executives with the requisite skills at a cost appropriate to the company. The Committee prepares proposals for policies for remuneration and other employment terms for resolution at the AGM.

Appointment of membersThe Board appoints members of the Remuneration Committee. The Code specifies that members of the Remuneration Committee must be independent of the company and company management. All members of the Remuneration Committee are independent in relation to SAS and the company management.

REMUNERATION COMMITTEE’S WORK FISCAL YEAR 2019 — THREE MINUTED MEETINGS

Meeting date 21/11 19/12 23/8Carsten DillingDag Mejdell

Present Absent

GUIDELINES FOR REMUNERATION TO SENIOR EXECUTIVESThe Annual General Meeting 2019 adopted guidelines for remuneration to senior executives as detailed in Note 3.

For the Annual General Meeting 2020, the Board of Directors proposes that the guidelines are updated according to the new rules in the Swedish Companies Act as of 1 January 2020 pertaining to guidelines to remuneration to senior executives.

The Board of Directors proposes guidelines for remu-neration to the CEO and other members of Group Management. The guidelines also encompass any remuneration to Board members, other than Directors' fees. The guidelines apply to remuneration agreed after the Annual General Meeting 2020 and amendments to agreed remuneration made thereafter. The guidelines do not apply to remuneration resolved by the general meeting. For employments governed by rules other than Swedish, pension benefits and other benefits may be duly adjusted for compliance with mandatory rules or established local practice, taking into account, to the extent possible, the overall purpose of these guidelines.

How the guidelines advance the company’s business strategy, long-term interests and sustainabilitySuccessful implementation of the company’s business strategy and safeguarding the company’s long-terminterests, including its sustainability, require the com-pany to recruit and retain highly qualified employees. In order to do so, SAS must offer competitive total remu-neration, which these guidelines enable. Total remu-neration should be on market terms and competitive and relate to responsibility and authority.

For information about the company’s business strat-egy, see the SAS website (https://www.sasgroup.net/en/strategic-priorities/).

Types of remuneration, etc.Remuneration shall be on market terms and may con-sist of the following components: fixed salary, any varia-ble salary according to separate agreements, pension and other benefits. The general meeting can also, irre-spective of these guidelines, resolve on, among other things, share and share price-related remuneration.


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Fixed salaryThe fixed salary shall consist of fixed cash salary. The fixed salary shall reflect the position requirements with respect to qualifications, responsibilities, complexity and the manner in which it serves to reach the business objectives. The fixed salary shall also reflect the per-formance of the senior executive and thus be individual and differentiated.

Variable salaryIn addition to fixed salary, senior executives reporting to the CEO may, according to separate agreements, receive variable salary when fulfilling agreed perfor-mance criteria and provided that their fixed salaries are frozen for review for a certain period after payment of the variable salary. Any variable salary shall consist of an annual variable cash salary and may amount to a maximum of 20 percent of the fixed annual salary. Criteria fulfillment for awarding variable salary shall be measured over a period of one year.

The variable salary shall be linked to one or several predetermined and measurable criteria, which can be financial, such as EBT, CASK and PASK, or non-financial, such as CO2 emissions, safety, employee engagement and customer satisfaction. Less than 30 percent of the variable cash remuneration shall depend on non-fi-nancial criteria. By linking the remuneration to senior executives to the company’s earnings as well as sustain-ability, the criteria contribute to the company’s business strategy, long-term interests and competitiveness.

To which extent the criteria for awarding variable cash remuneration has been satisfied shall be determined when the measurement period has ended. For financial objectives, the evaluation shall be based on the latest financial information made public by the company.

The terms for variable remuneration shall be designed so that the Board of Directors, under exceptional financial conditions, may limit or refuse to pay variable remuneration if such a measure is deemed reasonable.

Further variable cash remuneration may be awarded in extraordinary circumstances, provided that such extraordinary arrangements are limited in time and only made on an individual basis, either for the purpose of recruiting or retaining executives, or as remuneration for extraordinary performance beyond the individual’s ordinary tasks. Such remuneration may not exceed an amount corresponding to 20 percent of the fixed annual cash salary and may not be paid more than once each year per individual. Any resolution on such remuneration shall be made by the Board of Directors based on a pro-posal from the Remuneration Committee.

PensionFor the CEO, pension benefits, including health insur-ance, shall be defined contribution with premiums not exceeding 40 percent of the fixed annual salary. For other members of Group Management, pension bene-fits, including health insurance, shall be defined contri-bution unless the senior executive is subject to defined benefit pension under mandatory collective agreement provisions. Premiums for defined contribution pen-sions are not to exceed 30 percent of the fixed annual salary. Variable remuneration shall qualify for pension benefits to the extent required by mandatory collective agreement provisions applicable to the senior executive (applies to Sweden and defined contribution pension). In such case, the premiums for defined contribution pensions shall not exceed 36 percent of the fixed annual salary as a result of pension provisions for variable salary.

Other benefitsOther benefits, which may include, for example, com-pany car, travel benefits and health insurance, shall be on market terms and only constitute a limited part of the total remuneration. Premiums and other costs associated with such benefits may amount to a maxi-mum of 10 percent of the fixed annual salary.

Termination of employmentFor the CEO and other members of Group Management, the notice period shall be six months in case of termi-nation by the senior executive. In case of termination by the company the maximum notice period shall be 12 months. In case of termination by the company, sever-ance pay may be payable in an amount corresponding to a maximum of one year’s fixed salary less any remunera-tion received from new employments or assignments.

Additionally, remuneration may be paid for non-com-pete undertakings. Such remuneration shall compen-sate for loss of income and shall only be paid in so far as the previously employed executive is not entitled to severance pay. The remuneration shall be based on the fixed salary at the time of termination of employment and amount to not more than 60 percent of the fixed salary at the time of termination of employment, unless otherwise provided by mandatory collective agree-ment provisions, and be paid during the time the non- compete undertaking applies, however not for more than 18 months following termination of employment.

Fees to Board membersSAS Board members elected by the general meeting may, in specific cases and for limited time, be remu-nerated for services beyond Board work within their respective areas of competence. A fee on market terms for these services (including services rendered by a


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company wholly owned by a Board member) shall be paid, provided that such services contribute to the implementation of SAS’ business strategy and long-term interests, including its sustainability. Such con-sultant’s fee may, for each Board member, in no case exceed the annual Directors' fee.

Salary and employment conditions for employeesIn the preparation of the Board of Directors’ proposal for these remuneration guidelines, salary and employ-ment conditions for employees of the company have been taken into account by including information on the employees’ total income, the components of the remu-neration and increase and growth rate over time, in the Remuneration Committee’s and the Board of Directors’ basis of decision when evaluating whether the guidelines and the limitations set out herein are reasonable.

Preparation and decision-making processThe Board of Directors has established a Remuneration Committee. The Committee’s duties include preparing principles for remuneration to Group Management and the Board of Directors’ decision to propose guidelines for remuneration to senior executives. The Board of Directors shall prepare a proposal for new guidelines at least every fourth year and submit it to the general meeting for resolution. The guidelines shall be in force until new guidelines have been adopted by the general meeting. The Remuneration Committee shall also mon-itor and evaluate programs for variable remuneration to Group Management, the application of the guidelines to senior executives as well as the current remuneration structures and compensation levels in the company. Remuneration to the CEO shall be decided by the Board of Directors in line with approved policies following preparation and recommendation by the Remuneration Committee. Remuneration to other senior executives

shall be decided by the CEO in line with approved policies and after consultation with the Remuneration Committee. The members of the Remuneration Committee are independent in relation to the company and Group Management. The CEO and other members of Group Management do not participate in the Board of Directors’ discussions and decisions on remuneration- related matters that pertain to them.

Derogation from these guidelinesThe Board of Directors may decide to derogate from these guidelines, in whole or in part, if in a specific case there is special cause and such a derogation is neces-sary to safeguard the company’s long-term interests, including its sustainability, or to ensure the company’s financial viability. As stated above, the Remuneration Committee’s duties include preparing the Board of Directors’ decisions on remuneration matters, includ-ing decisions to derogate from these guidelines

G. PRESIDENT AND GROUP MANAGEMENTThe Board appoints the President of SAS AB, who is also Group CEO. The Board has delegated responsibility for the day-to-day administration of SAS to the President. Each year, an instruction defining the division of duties between the Board and the President is determined by the Board who also evaluate the work performed by the President. The Board’s instructions to the President contain detailed rules governing the President’s authority and obligations.

The President liaises, works closely, and has regular meetings with the Chairman to discuss the operations and performance of SAS, and to plan Board meetings. To enable the Board to monitor the financial position of SAS on an ongoing basis, the President makes monthly reports to the Board.

In fiscal year 2019, Group Management comprised eight members, including the President, until 30 September 2019, after which, following reorganization on 1 October 2019, it comprised seven members. The composition and functions of the Group Management are shown on pages 75–76.

Group Management is not a corporate body in the sense of Swedish limited company law and as a collegial management body has no legal liability vis-à-vis the Board and shareholders. Only the President reports to the Board. Group Management normally holds minuted meetings every week. These meetings are chaired by the President, who reaches decisions after consulting with the other members of Group Management.

The main business areas of SAS that are not them-selves a separate legal entity are led by Group Management through representatives for the respective business area.

Group Management’s management and control of operations are based on guidelines and policies regarding financial management and follow-up, communication issues, human resources, legal issues, brands, business ethics and environmental matters.

INTERNAL CONTROL — FINANCIAL REPORTINGSAS applies COSO, the internationally recognized framework for internal control, to describe and evaluate the Group’s control structure.

Internal control of financial reporting is a process involving the Board of Directors, company manage-ment and employees, and is designed to provide rea-sonable assurance regarding the reliability of external reporting. The Board is ultimately responsible for


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internal control. Five areas that jointly form the basis of a sound control structure are described below.

Control environmentThe control environment comprises the basis for internal control and includes the culture in which SAS communicates and acts. The Group’s ambition is that its values — reliability, openness, care and value- creation — will permeate the organization and the internal control environment.

All actions, internal as well as external, are to reflect these basic values. The SAS Group’s Code of Conduct describes the desired approach in various situations, including a structure for reporting deviations from the desired approach. Information concerning gov-ernance of the Group is available for all employees on the Group’s intranet. These documents describe SAS’ control philosophy, control model and entities as well as the companies’ roles and responsibilities, owner requirements, overall monitoring, internal business relationships and the allocation of tasks. Risk assessmentEach year, company management produces a risk assessment that encompasses all operations and is based on the targets of those operations. The risk assessment is presented to the Audit Committee and reviewed continuously throughout the year.

With regard to financial reporting, an assessment of significant risks in relation to major balance sheet and income items is carried out annually. This assessment grades the risks concerning financial reporting, and critical areas are identified.

Furthermore, SAS’ internal audit carries out an annual risk assessment that forms the basis of future years’ audit plans. Both the risk assessment and the audit plan are pre-sented to company management and the Audit Committee.

Control activitiesControl activities are carried out at different levels within SAS to manage risks and ensure the reliability of financial reporting. During fiscal year 2019, SAS con-tinued efforts to define important control activities, or key controls, in relation to significant risks concerning financial reporting. These key controls have been compiled and described in relation to each process as part of the SAS internal control framework. Processes covered by the framework include the management process, accounting process, revenue process, pur-chasing process, payroll process, asset management process and controls related to IT. The framework is subject to an annual review based on the updated risk assessment concerning risks related to financial reporting. SAS’ internal audit carried out a total of four audits during the fiscal year pertaining to: • IT security • Social media • Digital efficiency • Governance structure

Information and communicationSAS aims for information and communication paths pertaining to the internal control of financial reporting to be known and appropriate. All policies and guidelines in the financial areas are on the intranet, under the SAS Group Financial Guide. SAS’ accounting policies as well as any changes are always communicated by direct dispatch and at regular meetings with those responsi-ble for financial matters in the entities and subsidiaries. All entities and subsidiaries submit a monthly report

on their activities, including their financial status and performance. To ensure that the external information is correct and complete, an IR/Information policy has been adopted by the SAS Board. SAS’ published exter-nal reports are based on reporting from all legal entities in accordance with a standardized reporting procedure.

Regularly reported financial information includes the annual report, interim reports, monthly traffic reports, press releases, presentations and tele-phone conferences focused on financial analysts and investors, and meetings with the capital markets in Sweden and abroad. The above information is also available on the SAS website www.sasgroup.net.

MonitoringInternal audits at SAS have been outsourced. The audits carried out by internal audit are based on an annual internal audit plan and are mainly focused on operational risk areas. However, the internal audit plan also covers processes that impact financial reporting and the risk of irregularities, improper favoritism of another party at the company’s expense, and the risk of loss or embezzle-ment. The annual internal audit plan is approved by the Audit Committee and the SAS Group’s Board.

Monitoring and continuous evaluation of compliance with policies and guidelines as well as monitoring reported deficiencies are conducted regularly. In con-nection with monitoring action plans for noted defi-ciencies in control activities and their control targets, these measures are tested as is their compliance. Recommendations from the external and internal audits and the status of ongoing measures are compiled and presented to Group Management and the Audit Committee. Financial reporting is discussed at each Board meeting and at meetings of the Audit Committee.


BOARD OF DIRECTORSThe Board is responsible for the organization and administration of SAS, for ensuring proper control of its accounting and other financial circumstances as well as for appointing and removing the President. All mem-bers elected by the shareholders’ meeting are inde-pendent of the company and company management. The 2019 AGM adopted the Nomination Committee’s recommendation for reelection of Carsten Dilling, Monica Caneman, Lars-Johan Jarnheimer, Dag Mejdell, Sanna Suvanto-Harsaae, Liv Fiksdahl and Oscar Stege Unger and the election of new member Kay Kratky. Carsten Dilling was elected Chairman of the Board.

The composition of the Board is based on the fact that SAS operates in a market subject to significant pres-sure for change and intense competition. Given these conditions, the Nomination Committee is of the opinion that continuity on the Board is of particular importance.

With its experience of SAS and previous action pro-grams, the Nomination Committee deemed the Board to be particularly suited to provide the company’s management the necessary support in the ongoing change process.

The Nomination Committee’s opinion was that the Code’s requirements for diversity, breadth and an even gender balance increased through the Nomination Committee’s proposal.

No share convertibles or options have been issued to the Board of SAS AB.

CARSTEN DILLING, BORN 1962Chairman of the Board of SAS AB since 2018. Member of the Board of SAS AB since 2014. Directorships: Chairman of NNIT A/S, Icotera A/S, MT Højgaard Holding A/S and MT Højgaard A/S, and Board member of Terma A/S. Education: B.Sc. and M.Sc. in Economics and Business Administration, Copenhagen Business School. Earlier directorships/positions: Chairman of Get AS and Traen A/S; Board member of Gatetrade A/S, Columbus IT Partner A/S, Confederation of Danish Industry (DI) and Industrial Employers in Copenhagen (IAK) and a number of Board assignments for the TDC Group. Previously President and CEO of TDC A/S. Shareholding: 35,222.Shareholding of related parties: 0.

Independent of the company, the company management and the company’s major shareholders.

DAG MEJDELL, BORN 1957Vice Chairman of the Board of SAS AB since 2008. Directorships: Chairman of Norsk Hydro ASA, Sparebank 1 SR Bank ASA, Vygruppen AS, International Post Corporation and Visolit AS. Education: MBA, Norwegian School of Economics and Business Administration. Earlier directorships/positions: President and CEO of Dyno Nobel ASA and CEO of Posten Norge AS. Chairman of Arbeids-giverforeningen Spekter, Svenska Handelsbanken, Region Norway and Vice Chairman of Evry ASA. Board member of DYWIDAG System International GmbH. Industrial advisor IK investment Partners.Shareholding: 4,214. Shareholding of related parties: 0.


MONICA CANEMAN, BORN 1954Member of the Board of SAS AB since 2010.Directorships: Chairman of the Board of Euroclear Sverige AB and Almi Företagspartner AB. Board member of Qliro Financial Services AB. Chairman of Nasdaq AB Listing Committee. Education: MBA, Stockholm School of Economics. Earlier directorships/positions: Chairman of Allenex AB, Arion Bank hf, Big Ba AB, Bravida Holding AB, EDT AS, the Fourth Swedish Pension Fund, Frösunda LSS AB, Interverbum AB and Viva Media Group AB. Board member of Akademikliniken AB, Citymail Group AB, Comhem AB, EDB Business Partner ASA, Intermail A/S, Lindorff Group AB, My Safety AB, Nets AB, Nordisk Energiförvaltning ASA, Nya Livförsäkrings AB, Nocom AB, Resco AB, Schibsted ASA, SEB Trygg Liv, Svenska Dagbladet AB and XponCard Group AB. Shareholding: 4,000.Shareholding of related parties: 0.


LIV FIKSDAHL, BORN 1965Member of the Board of SAS AB since 2018.Directorship/position: Board member of Intrum AB, Posten Norge AS and Arion Banki, Island. Vice President of Sector Financial Services, Capgemini Norway. Education: Finance and man-agement at Trondheim Business School.Earlier directorships/positions: Head of IT and Operations at DnB, and other previous leading positions in DnB. Chairman of the Board of the industry organi-zation Banking and Payment in Finance Norway. Vice Chairman of the Norwegian Savings Banks Association. Board member of Nille AS, BankAxept and Doorstep. Shareholding: 0.Shareholding of related parties: 0.


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LARS-JOHAN JARNHEIMER, BORN 1960Member of the Board of SAS AB since 2013. Directorships: Chairman of Telia Company AB, Arvid Nordqvist HAB, Egmont International Holding AS and Ingka Holding B.V (IKEA). Board member of Point Properties AB and Elite Hotels. Chairman of the Polar Music Prize. Education: B.Sc. in Business Administration and Economics, Lund and Växjö universities.Earlier directorships/positions: Chairman of Qliro Group, BRIS and Eniro AB. Board member of MTG Modern Times Group AB, Millicom International Cellular S.A, Invik and Apoteket AB. President and CEO of Tele2. Shareholding: 10,000.Shareholding of related parties: 0.


SANNA SUVANTO-HARSAAE, BORN 1966Member of the Board of SAS AB since 2013. Directorships: Chairman of Altia Oyj, BoConcept AS, TCM Group AS, Babysam AS, Nordic Pet Care Group AS, Paulig Oyj, Isadora AB and Footway AB. Board member of CEPOS and Broman Group Oyj.Education: M.Sc. in Business and Economics, Lund University. Earlier directorships/positions: Chairman of Health and Fitness Nordic AB, Sunset Boulevard AS and BTX AS. Board member of Jetpak AB, Duni AB, Candyking AB, Upplands Motor AB, CCS AB and Clas Ohlson AB. Shareholding: 2,100.Shareholding of related parties: 0.


OSCAR STEGE UNGER, BORN 1975Member of the Board of SAS AB since 2018.Directorship/position: Director of Wallenberg Foundation AB.Education: Master of Science in Business Administration and Bachelor of Science in Economics at Stockholm University. Earlier directorships/positions: Head of Investor Relations, and thereafter Head of Communi-cations, at Investor AB.Shareholding: 10,000.Shareholding of related parties: 0.


EMPLOYEE REPRESENTATIVE CHRISTA CERÈ, BORN 1977 Employed at Scandinavian Airlines in Denmark. Member of the Board of SAS AB since 2019.Shareholding: 0.Shareholding of related parties: 0.

Deputies:Kim John Christiansen, First Deputy.Shareholding: 0.William Nielsen, Second Deputy.Shareholding: 0.

EMPLOYEE REPRESENTATIVE CECILIA VAN DER MEULEN, BORN 1955 Employed at Scandinavian Airlines in Sweden. Member of the Board of SAS AB since 2017.Shareholding: 0.Shareholding of related parties: 0.

Deputies: Lisa Kemze, First Deputy. Shareholding: 0.Joacim Olsson, Second Deputy. Shareholding: 0.

EMPLOYEE REPRESENTATIVE ENDRE RØROS, BORN 1972Employed at Scandinavian Airlines in Norway. Member of the Board of SAS AB since January 2018. Shareholding: 0.Shareholding of related parties: 0.

Deputies: Pål Gisle Andersen, First Deputy.Shareholding: 0.Jan Levi Skogvang, Second Deputy. Shareholding: 0.

KAY KRATKY, BORN 1958Member of the Board of SAS AB since 2019.Directorships/position: Board member of the Austrian Aviation Association, President of the Aviation Initiative for Renewable Energy in Germany e.V. and Chairman of the Advisory Board of Caphenia GmbH.Education: Mechanical engineering at Technische Hochschule Darmstadt.Earlier directorships/positions: Chief Executive Officer of Austrian Airlines, COO Lufthansa German Airlines.Shareholding: 0.Shareholding of related parties: 0. Independent of the company, the company management and the company’s major shareholders.

Auditors: KPMGAuditor in charge: Tomas Gerhardsson. Authorized Public Accountant. Elected at the 2019 AGMBoard secretary: Marie Wohlfahrt, General Counsel.

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GROUP MANAGEMENTGroup Management is responsible for the company’s business management, financial reporting, acquisitions/divestments, financing and communi-cation, and other corporate matters. The members of the Group Management are appointed by the President in consultation with the Board of Directors. Only the President reports to the Board while the other members of Group Management report to the President. Group Management’s responsibilities are divided among its members with regard to managing the company’s business affairs, and minuted meetings are normally held every week. Lars Sandahl Sørensen left SAS in August 2019 and from 1 October 2019 a new Group Management was implemented, where the operational entity was divided into two entities and the commercial operations were brought together in one entity. Executive Vice President Annelie Nässén, Head of Global Sales & Marketing, as well as Deputy President & Executive Vice President Göran Jansson, Strategy & Ventures, left SAS in conjunction with the reorganization.

RICKARD GUSTAFSON, BORN 1964President and CEO. Member of SAS Group Management since 1 February 2011. Previously: Various executive positions at GE Capital, both in Europe and the US, and President of Codan/Trygg-Hansa from 2006–2011. External directorships: Board member of FAM AB and Telia Company AB. Education: M.Sc. Industrial Economics. Shareholding: 40,000. Shareholding of related parties: 5.

Rickard Gustafson and related parties have no significant shareholdings or part ownership in companies with which SAS conducts major business.

TORBJØRN WIST, BORN 1968Executive Vice President and CFO.Member of SAS Group Management since 1 March 2018. Previously: Group Treasurer at Telenor ASA and multiple financial leadership positions at Telenor, Greenhill & Co, Merrill Lynch and Salomon Brothers. External directorships: None.Education: Business degree from Richard Ivey School of Business at the University of Western Ontario in London, Canada. Shareholding: 0.Shareholding of related parties: 0.

MATTIAS FORSBERG, BORN 1972 Executive Vice President and CIO.Member of SAS Group Management since 1 January 2016. Previously: CIO at Systembolaget 2011–2015 and previously CIO at B&B Tools and strategy/management consultant at Accenture, including experience of Swedish and international assignments. External directorships: None. Education: MSc in Engineering Physics and Business and a BSc in Economics at Uppsala University. Shareholding: 0.Shareholding of related parties: 0.

CARINA MALMGREN HEANDER, BORN 1959Executive Vice President and Chief of Staff. Member of SAS Group Management since 1 January 2015. Previously: Several leading positions in HR and operations at Electrolux, Sandvik and ABB. External directorships: Chairman of Svenska Flyg-branschen AB. Board member of Projektengagemang AB, Transportföretagen AB and the Confederation of Swedish Enterprise. Education: MBA, Linköping University. Shareholding: 0.Shareholding of related parties: 0.

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SIMON PAUCK HANSEN, BORN 1976 Executive Vice President and COO Airline Operations. Member of SAS Group Management since 1 October 2019.Previously: Vice President Network & Planning and several previous senior positions at SAS. Simon Pauck Hansen started as an intern at SAS in 1996.External directorships: Chairman of Luftfartens KlimapartnerskabEducation: Diploma in Business Administration with major in Marketing from Copenhagen Business School (HD). Shareholding: 0.Shareholding of related parties: 0.

KJETIL HÅBJØRG, BORN 1972Executive Vice President Airline Services. Member of SAS Group Management since 1 October 2019. Previously: Vice President SAS Ground Handling and several previous senior positions at SAS. Before Kjetil Håbjørg was recruited to SAS in 2004, he worked as a management consultant. External directorships: NHO Luftfart.Education: Executive MBA, Master in Strategic Management, Norwegian Business School. Shareholding: 2,500.Shareholding of related parties: 0.

KARL SANDLUND, BORN 1977Executive Vice President and CCO.Member of SAS Group Management since 1 February 2014. Previously: Executive Vice President Commercial and previously worked in various man-agement positions for SAS. Karl Sandlund worked for McKinsey before joining SAS in 2004. External directorships: Board member of Storebrand ASA. Education: M.Sc. in Industrial Engineering and Management from Linköping University. Shareholding: 2,000. Shareholding of related parties: 0.

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FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO PARENT COMPANY FINANCIAL STATEMENTS SIGNATURES | AUDITORS’ REPORT

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MSEK Note FY19 FY18Revenue 2 46,736 44,718Payroll expenses 3 -9,934 -9,441Other operating expenses 4 -30,253 -28,338Leasing costs for aircraft -3,561 -3,156Depreciation, amortization and impairment 5 -1,924 -1,763Share of income in affiliated companies 6 -10 35Income from the sale of shares in subsidiaries and affiliated companies 0 -4Income from sale of aircraft 7 112 479Operating income (EBIT) 1,166 2,530

Income from other securities holdings 8 0 0Financial income 9 172 129Financial expenses 9 -544 -609Income before tax (EBT) 794 2,050

Tax 10 -173 -455Net income for the year 621 1,595

Other comprehensive incomeItems that may later be reversed to net income:Exchange-rate differences in translation of foreign operations -20 148Cash-flow hedges – hedging reserve, net after tax of 313 (45) -1,109 -166Items that will not be reversed to net income:Revaluations of defined-benefit pension plans, net after tax of 537 (291) -1,752 -915Total other comprehensive income, net after tax -2,881 -933Total comprehensive income -2,260 662

Net income for the year attributable to:Parent Company shareholders 621 1,595

Earnings per common share (SEK)1 44 1.54 3.71Earnings per common share after dilution (SEK)1 44 1.48 3.27

1) Earnings per common share are calculated as net income for the period attributable to Parent Company shareholders less preference- share dividends and hybrid bond expenses in relation to an average of 382,582,551 (382,582,551) common shares outstanding.

Income before tax and items affecting comparability, MSEK FY19 FY18Income before tax (EBT) 794 2,050Impairment1 93 206Restructuring costs2 230 255Capital gains/losses3 -112 -475Other items affecting comparability4 -219 100Income before tax and items affecting comparability 786 2,136

1) Impairment pertains to aircraft, MSEK 93 (206).

2) Restructuring cost were charged to earnings as payroll expenses of MSEK 230 (105) and property costs of MSEK 0 (150).

3) Capital gains and losses include aircraft sales amounting to MSEK 112 (479) and the sale of subsidiaries MSEK 0 (-4).

4) Other items affecting comparability included the release of a provision for indirect taxes of MSEK -148 (0) and the release of a one-time award to our employees of MSEK -71 (100). Of the initial MSEK 100 set aside in fiscal year 2018, MSEK 29 will be distributed to our employees.

CONSOLIDATED STATEMENT OF INCOME INCLUDINGSTATEMENT OF OTHER COMPREHENSIVE INCOME

Financial Statements

Consolidated financial statements

Parent Company financial statements

Signatures

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Notes to the consolidated financial statements

Notes to Parent Company financial statements


MARKET AND STRATEGY





MSEK FY18 FY19Q1 Q2 Q3 Q4 Full-year Q1 Q2 Q3 Q4 Full-year

Nov–Jan Feb–Apr May–Jul Aug–Oct Nov–Oct Nov–Jan Feb–Apr May–Jul Aug–Oct Nov–OctRevenue 8,978 9,916 13,146 12,678 44,718 9,534 10,187 13,552 13,463 46,736Payroll expenses -2,268 -2,355 -2,385 -2,433 -9,441 -2,401 -2,420 -2,504 -2,609 -9,934Other operating expenses -5,871 -6,835 -7,431 -8,201 -28,338 -6,387 -7,593 -8,050 -8,223 -30,253Leasing costs for aircraft -760 -765 -814 -817 -3,156 -787 -846 -985 -943 -3,561Depreciation, amortization and impairment -353 -374 -404 -632 -1,763 -419 -455 -548 -502 -1,924Share of income in affiliated companies -9 -8 29 23 35 -9 -3 1 1 -10Income from the sale of shares in subsidiaries and affiliated companies -4 0 0 0 -4 0 0 0 0 0Income from sale of aircraft 104 47 26 302 479 8 0 104 0 112Operating income (EBIT) -183 -374 2,167 920 2,530 -461 -1,130 1,570 1,187 1,166

Income from other securities holdings 0 0 0 0 0 0 0 0 0 0 Financial income 34 30 34 31 129 44 44 43 41 172Financial expenses -136 -144 -167 -162 -609 -159 -130 -123 -132 -544Income before tax (EBT) -285 -488 2,034 789 2,050 -576 -1,216 1,490 1,096 794

Tax 36 139 -464 -166 -455 107 283 -328 -235 -173Net income for the period -249 -349 1,570 623 1,595 -469 -933 1,162 861 621

Attributable to:Parent Company shareholders -249 -349 1,570 623 1,595 -469 -933 1,162 861 621Non-controlling interests 0 0 0 0 0 0 0 0 0 0

REVENUE(Per quarter, according to the November–October fiscal year)

MSEK

2017–2018 2018–2019

0

3,000

6,000

9,000

12,000

15,000

Q4Q3Q2Q1Q4Q3Q2Q1

EBIT MARGIN(Per quarter, according to the November–October fiscal year)

%

2017–2018 2018–2019

-15

-10

-5

0

5

10

15

20

Q4Q3Q2Q1Q4Q3Q2Q1

STATEMENT OF INCOME EXCLUDING OTHER COMPREHENSIVE INCOME — QUARTERLY BREAKDOWN




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MARKET AND STRATEGY





ASSETS, MSEK Note 31 Oct 2019 31 Oct 2018Fixed assets

Intangible assets 11 1,416 1,498Tangible fixed assets 12Land and buildings 569 500Aircraft 11,609 8,767Spare engines and spare parts 87 92Workshop and aircraft servicing equipment

126 73Other equipment and vehicles 93 102Investment in progress 14 48Prepayments relating to tangible fixed assets 13 3,071 2,658

15,569 12,240Financial fixed assets 14Equity in affiliated companies 6 14 417Other holdings of securities 9 3Pension funds, net 15 2,004 4,025Deferred tax assets 10 750 174Other long-term receivables 2,519 2,770

5,296 7,389Total fixed assets 22,281 21,127

Current assets

Expendable spare parts and inventories 16 346 401346 401

Current receivables 17Accounts receivable 1,233 1,219Receivables from affiliated companies 18 0 1Other receivables 543 866Prepaid expenses and accrued income 19 846 829

2,622 2,915Cash and cash equivalents

Short-term investments 20 2,273 4,232Cash and bank balances 6,490 5,524

8,763 9,756Total current assets 11,731 13,072TOTAL ASSETS 34,012 34,199

SHAREHOLDERS’ EQUITY AND LIABILITIES, MSEK Note 31 Oct 2019 31 Oct 2018Shareholders’ equityShare capital 21 7,690 7,732Other contributed capital 170 327Reserves 22 112 1,241Hybrid bond 1,500 –Retained earnings -4,100 -2,032Total shareholders’ equity attributable to Parent Company shareholders 5,372 7,268

Non-controlling interests – –Total shareholders’ equity 5,372 7,268

Long-term liabilities 23Subordinated loans 24 1,240 1,161Bonds 25 3,063 3,040Other loans 26 5,147 3,291Deferred tax liability 10 183 359Provisions 28 1,966 4,044Other liabilities 29 1,926 116

13,525 12,011Current liabilitiesCurrent portion of long-term loans 784 2,272Short-term loans 30 1,049 328Prepayments from customers 23 13Accounts payable 1,700 1,675Tax liabilities 17 32Unearned transportation liability 29 6,049 5,681Current portion of provisions 28 1,559 1,028Other liabilities 732 582Accrued expenses and prepaid income 31 3,202 3,309

15,115 14,920TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 34,012 34,199

Shareholders’ equity per common share (SEK) 10.12 16.11

Information about the Group’s pledged assets, contingent liabilities and leasing commitments is given in notes 32, 33 and 34.

CONSOLIDATED BALANCE SHEETFinancial Statements



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MARKET AND STRATEGY





MSEKShare

capital1

Other contributed

capital2Hedging reserves

Translation reserve

Hybrid bond

Retained earnings3

Total shareholders’

equityOpening shareholders’ equity in accordance with approved balance sheet, 31 October 2017 6,776 327 1,472 -198 – -319 8,058Effect of new accounting policy, IFRS 9 -20 20 0Adjusted opening shareholders' equity, 1 November 2017 6,776 327 1,452 -198 – -299 8,058New issue 1,055 178 1,233Preference share dividend -105 -105Redemption of preference shares -99 -2,480 -2,579Net income for the year 1,595 1,595Other comprehensive income November–October -160 147 -921 -934Closing balance, 31 October 2018 7,732 327 1,292 -51 – -2,032 7,268Effect of new accounting policy, IFRS 9 and IFRS 15 -27 -27Adjusted opening shareholders’ equity, 1 November 2018 7,732 327 1,292 -51 – -2,059 7,241Redemption of preference shares -42 -1,044 -1,086Equity share of convertible loans -157 157 0Hybrid bond 1,500 1,500Hybrid bond interest and expenses -23 -23Net income for the year 621 621Other comprehensive income November–October -1,109 -20 -1,752 -2,881Closing balance, 31 October 2019 7,690 170 183 -71 1,500 -4,100 5,372

1) Number of shares in SAS AB: 382,582,551 (382,582,551) common shares with a quotient value of SEK 20.10 and 0 (2,101,552) preference shares with a quotient value of SEK 20.10.

2) The amount comprises share premium reserves and the equity share of convertible loans.

3) No dividends were paid on common shares for fiscal year 2018.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFinancial Statements



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MARKET AND STRATEGY





MSEK Note FY19 FY18OPERATING ACTIVITIESIncome before tax (EBT) 794 2,050Depreciation, amortization and impairment 1,924 1,763Income from sale of aircraft, buildings and shares -112 -475Adjustment for other non-cash items, etc. 35 -248 219Tax paid -53 -45Cash flow from operations before change in working capital

2,305 3,512Change in:Expendable spare parts and inventories 54 -79Operating receivables -5 267Operating liabilities 964 859Cash flow from change in working capital 1,013 1,047Cash flow from operating activities 3,318 4,559

INVESTING ACTIVITIESAircraft -4,796 -5,236Spare parts – -38Buildings, equipment and investment in progress -116 -107Shares and participations, intangible assets, etc. -96 -11Prepayments for aircraft -1,183 -1,448Acquisition of subsidiaries 36 -16 –Total investments -6,207 -6,840Sale of subsidiaries and affiliated companies 37 394 -3Sale of aircraft, spare engines and buildings – –Income from sale and leaseback of aircraft 1,329 4,068Sale of fixed assets, etc. -96 96Cash flow from investing activities -4,580 -2,679

MSEK Note FY19 FY18

FINANCING ACTIVITIES 38Hybrid bond 1,474 –New issue – 1,223Redemption of preference shares -1,112 -2,579Dividend on preference shares -26 -228Proceeds from borrowings 2,292 3,853Repayment of borrowings -2,362 -2,921Defined-benefit pension payments -268 -283Payments of deposits and blocked bank funds -163 -224Repayments of deposits and blocked bank funds 408 211Other financing activities 26 -15Cash flow from financing activities 269 -963

Cash flow for the year -993 917Translation difference in cash and cash equivalents 0 3Cash and cash equivalents at beginning of the year 9,756 8,836Cash and cash equivalents at year end 39 8,763 9,756

Cash flow from operating activities per common share (SEK) 8.67 11.92

CONSOLIDATED CASH-FLOW STATEMENT

COMMENTS ON THE CASH-FLOW STATEMENTCash flow from operating activities before changes in working capital amounted to MSEK 2,305 (3,512). Adjustment for other non-cash items, etc., primarily pertained to provisions for restructuring costs and other items affecting comparability.

Changes in working capital amounted to MSEK 1,013 (1,047). It was primarily operating liabilities, particularly provisions for aircraft maintenance, that increased during the year.

Aircraft acquisitions during the year amounted to MSEK 3,071, and comprised delivery payments for six new Airbus A320neos and one Airbus A330 as well as the purchase of three Boeing 737s that were previously under operating leases. Moreover, aircraft invest-ments included MSEK 1,498 in capitalized expenditure for aircraft maintenance and MSEK 227 for aircraft modifications.

Over the year, sale and leaseback arrangements were concluded for the Airbus A330 acquired during the year, as well as for Airbus A340 engines.

At the start of the fiscal year, a redemption was completed for all preference shares outstanding. The convertible bond that matured in April was repaid in an amount of MSEK 1,574. A hybrid bond with a nominal value of MSEK 1,500 was issued in October, and after deduc-tion of transaction costs, raised MSEK 1,474 for the Group.

In all, the SAS Group’s cash and cash equivalents decreased during the fiscal year by MSEK -993 (920), whereupon cash and cash equivalents amounted to MSEK 8,763 (9,756).




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MARKET AND STRATEGY





ACCOUNTING POLICIES

NOTE 1 Significant accounting policies 84

REVENUE AND EARNINGS

NOTE 2 Revenue 92

NOTE 4 Other operating expenses 94

NOTE 5 Depreciation, amortization and impairment 94

NOTE 6 Share of income and equity in affiliated companies 95

NOTE 7 Income from sale of aircraft 95

NOTE 8 Income from other securities holdings 95

NOTE 9 Net financial items 95

NOTE 10 Tax 96

NOTE 40 Auditors’ fees 116

NOTE 41 Transactions with affiliated companies 116

NOTE 42 Segment reporting 117

NOTE 44 Earnings per share 118

NOTE 45 Related-party transactions 118

OPERATING ASSETS

NOTE 11 Intangible assets 97

NOTE 12 Tangible fixed assets 98

NOTE 13 Prepayments relating to tangible fixed assets 99

NOTE 16 Expendable spare parts and inventories 102

NOTE 17 Current receivables 102

NOTE 18 Current receivables from affiliated companies 102

NOTE 19 Prepaid expenses and accrued income 102

NOTE 43 Subsidiaries in the SAS Group 118

PERSONNEL

NOTE 3 Payroll expenses 92

NOTE 15 Post-employment benefits 99

OTHER

NOTE 46 Significant events after the closing date 118

FINANCIAL ASSETS & LIABILITIES

NOTE 14 Financial fixed assets 99

NOTE 20 Short-term investments 102

NOTE 23 Long-term liabilities 104

NOTE 24 Subordinated loans 104

NOTE 25 Bonds 104

NOTE 26 Other loans 105

NOTE 27 Financial risk management and financial derivatives

105

NOTE 30 Short-term loans 114

NOTE 39 Cash and cash equivalents 116

OPERATIONAL LIABILITIES & OBLIGATIONS

NOTE 28 Provisions 114

NOTE 29 Contractual assets and liabilities 114

NOTE 31 Accrued expenses and prepaid income 114

NOTE 32 Pledged assets 115

NOTE 33 Contingent liabilities 115

NOTE 34 Leasing commitments 115

PARENT COMPANY

NOTE 1 No. of employees, salaries, other remuneration and social security expenses

121

NOTE 2 Tax 121

NOTE 3 Participations in subsidiaries 121

NOTE 4 Other holdings of securities 121

NOTE 5 Bonds 121

NOTE 6 Contingent liabilities 121

NOTE 7 Auditors’ fees 121

CASH FLOW

NOTE 35 Adjustment for other non-cash items, etc. 115

NOTE 36 Acquisition of subsidiaries 115

NOTE 37 Sale of subsidiaries and affiliated companies 116

NOTE 38 Liabilities in financing activities 116

CAPITAL STRUCTURE

NOTE 21 Share capital 103

NOTE 22 Reserves 103

EXPLANATION OF NOTESFinancial Statements



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MARKET AND STRATEGY





NOTES TO THE FINANCIAL STATEMENTS

EFFECT OF NEW STANDARDS – IFRS 9 AND IFRS 15

MSEKReported

31 October 2018IFRS 9

AdjustmentsIFRS 15

AdjustmentsAdjusted balance

1 November 2018Accounts receivable 1,219 -14 1,205Shareholders’ equity 7,268 -11 -16 7,241Unearned transportation liability 5,681 21 5,702Deferred tax assets 174 3 5 182




Signatures

Auditors’ report



NOTE 1 SIGNIFICANT ACCOUNTING POLICIES

GENERALSAS AB (the “Company”) and its subsidiaries (collectively referred to as the “Group”) provide transportation services.

The core business of the Group is operating passenger flights on an extensive Nordic and international route network. The Group’s three main op-erational hubs in Copenhagen, Oslo and Stockholm form the backbone of its flight network. In addition to passenger flights, the Group provides air cargo and other aviation services at selected airports in the Group’s route network.

SAS AB is a Swedish public limited company registered in Stockholm and the address of its head office is Frösundaviks allé 1, Solna, Stockholm. SAS AB is the Parent Company of the SAS Group.

The consolidated financial statements for SAS AB have been prepared in accordance with the Annual Accounts Act, recommendation RFR 1 — Supplementary Accounting Rules for Corporate Groups, and the EU-approved International Financial Reporting Standards (IFRS) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) that apply for fiscal years starting 1 November 2018. These standards have been consistently applied to all periods presented in the consolidated finan-cial statements. The financial statements have been prepared on a cost basis, except for the remeasurement of financial assets and liabilities. The principal accounting policies adopted are set out below.

ACCOUNTING ESTIMATES AND ASSUMPTIONS IN THE FINANCIAL STATEMENTSThe preparation of financial statements in accordance with IFRS requires management to perform estimates and assumptions that influence the application of the accounting policies and the carrying amounts of assets, liabilities, revenue and expenses. Actual outcomes may differ from these estimates and assumptions.

The estimates and assumptions are regularly reviewed. Changes in estimates are recognized in the period in which the change is made if the change affects only that period, or in the period in which the change is made and future periods if the change affects both the current and future periods. For more information, see “Critical accounting estimates and key sources of estimation uncertainty” in this note.

NEW AND AMENDED STANDARDS AND INTERPRETATIONS APPLICABLE FOR FISCAL YEAR 2019Since 1 November 2018, the Group applies IFRS 15 – Revenue from Contracts with Customers, and IFRS 9 – Financial Instruments. The table on the right shows the impact of the implementation of IFRS 9 and IFRS 15 on equity and other balance sheet items at the transition date of 1 November 2018. More information on the application of IFRS 15 and IFRS 9 within the Group is provided in this note. No other material amendments occurred in IFRS that affected the Group.

PRINCIPLES OF CONSOLIDATIONThe consolidated financial statements include the financial statements of the Parent Company and the entities over which controlling influence is exercised by the Group. The Group controls a company when it is exposed to, or has rights to, variable returns from its participation in the company and is able to affect those returns through its influence over the company.

Entities in which the Group has an ownership interest of at least 20% and no more than 50%, or where the Group has significant influence by other means but cannot exercise controlling influence, are affiliated companies. Affiliated companies are accounted for using the equity method.

The earnings of subsidiaries acquired during the year are included in the Group’s earnings from the effective date of control. The separate net assets, both tangible and intangible, of newly acquired subsidiaries are consolidated into the financial statements on the basis of the fair value to the Group as at the effective date of control. The earnings of subsidiaries disposed of during the fis-cal year are included in the Group’s earnings up to the effective date of disposal.

Non-controlling interests in the net assets of consolidated subsidiaries are recognized in the consolidated balance sheet as a separate component of equity. The Group’s earnings and components in other comprehensive income are attributable to the Parent Company’s owners and to the non-controlling interests’ owners, even if this generates a negative value for the non-con-trolling interest. All intra-Group transactions, balance-sheet items, revenue and expenses are eliminated on consolidation.

BUSINESS COMBINATIONSAcquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the acquisition date when controlling influence is achieved) of the assets transferred, liabilities incurred or assumed, and equity shares issued by the Group in exchange for control of the acquiree. Acquisition-related expenses are recognized in profit or loss when they are in-curred. The cost also includes fair value at the acquisition date for the assets or liabilities that arise from any agreement governing a contingent consideration. Contingent considerations are classified either as equity or financial liabilities. Amounts classified as financial liabilities are remeasured each period at fair value, and any remeasurement gains or losses are recognized in profit or loss.

The acquiree’s identifiable assets, liabilities and contingent liabilities that qualify for recognition under IFRS 3 – Business Combinations are recognized at fair value on the acquisition date.

In business combinations where the sum of the cost, any non-controlling interests and fair value at the acquisition date for previously held equity exceeds fair value at the acquisition date for identifiable acquired net assets, the difference is recognized as goodwill in the balance sheet. If the difference is negative, this is recognized directly in profit or loss as a gain from a bargain purchase, following a review of the difference.

Non-controlling interestsChanges in the Parent Company’s share in a subsidiary that do not lead to a loss of controlling influence are recognized as equity transactions (in other words, as transactions with the Group’s owner). Any difference between the sum by which the non-controlling interests has been adjusted and the fair value of the consideration paid or received is recognized directly in equity and distributed to the Parent Company’s owners.

Loss of controlling influenceWhen the Parent Company loses controlling influence of a subsidiary, the divestment gain or loss is calculated as the difference between: • the sum of the fair value for the consideration received and the fair

value of any remaining holdings, and • the previously recognized values of the subsidiary’s assets (including

goodwill) and liabilities as well as any non-controlling interest.

INVESTMENTS IN AFFILIATED COMPANIESAffiliated companies comprise all companies where the Group exercises significant but not controlling influence, which generally applies for sharehold-ings representing 20–50% of the votes. Affiliated companies are accounted for using the equity method.

The earnings of affiliated companies are accounted for based upon the Group’s proportional ownership of the earnings of these affiliates. Any losses arising from affiliated companies are recorded in the consolidated financial statements until the investment in such affiliated companies is impaired to zero. Thereafter, losses are only accounted for to the extent that the Group is


MARKET AND STRATEGY





Note 1 continued




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committed to providing financial support to such affiliated companies.The carrying amount of investments in affiliated companies represents the

cost of each investment, including goodwill, the share of retained earnings following acquisition and any other changes in equity. The carrying amount of investments in affiliated companies is reviewed on a regular basis and if any decline in value has occurred, it is impaired in the period in which this occurred.

Profits and losses from transactions with affiliated companies are eliminated in proportion to the Group’s interest in these affiliated companies.

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE When the Group intends to dispose of, or classify as “held for sale,” a business component that represents a separate major line of business or geographical area of operations, it classifies the component as discontinued. Any capital gain or loss after tax from discontinued operations is recognized separately in profit or loss, separate from the other results of the Group, and the accounting for the comparative period is shown to present the discontinued operations separately from the continuing operations.

Assets held for sale are measured at the lower of carrying amount and fair value less selling costs. Fixed assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met when a decision has been made by the management and Board to dispose of the business, an active sales process has commenced, and the asset is available for immediate sale in its present condition, and it is highly probable that the sale will take place within one year.

SEGMENT REPORTINGThe Group’s operations are reported as one operating segment, which is consistent with the internal reporting to the Chief Operating Decision Maker (CODM), which is defined as SAS Group Management.

Geographic information about revenue from external customers and assetsTraffic revenue from domestic services in Denmark, Norway and Sweden is allocated to Domestic. Traffic between the three countries is allocated to Intra-Scandinavian. Other traffic revenues are allocated to the geographical area where the destination is located. Other revenues are allocated to a geographical area based on the customer’s geographical location relating, for example, to goods exported to a customer in another country or, alternatively, the geographical location where the service is performed.

Assets broken down by geographic area do not include the Group’s aircraft or prepayments for tangible fixed assets. Since aircraft are utilized in a flexible manner across the route network, there is no justifiable basis for allocating aircraft.

FOREIGN CURRENCY TRANSLATIONThe individual financial statements of the entities in the Group are measured in the functional currency of the entities, i.e., the currency of the primary economic environment in which they operate.

Transactions in currencies other than the entity’s functional currency (foreign currencies) are remeasured at the exchange rates prevailing on the transaction dates. At each closing date, monetary assets and liabilities denominated in foreign currencies are retranslated at the closing-date exchange rates. Non-monetary items carried at fair value denominated in foreign currencies are translated at the rates prevailing at the date fair value was determined. Non-monetary items that are measured in terms of cost in a foreign currency are not translated.

Exchange differences arising from translation are recognized as a gain or loss in the period in which they arise, except for exchange differences on transactions entered into to hedge net investments in foreign subsidiaries and exchange differences relating to monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur and, which form part of the net investment in a foreign operation. These differences are recognized in other comprehensive income.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at the closing-date exchange rates. Revenue and expense items are translated at the average exchange rates for the period, provided that exchange rates do not fluctuate substantially in the period. In the latter case, the exchange rate on the transaction date is applied. Any translation differences are recognized in other comprehensive income.

The exchange rates applied in the translation of the financial statements for consolidation purposes are as follows:

EXCHANGE RATES

Closing rate Average rate31 Oct

201931 Oct

2018 FY19 FY18Denmark DKK 100 143.91 139.43 141.09 136.52Norway NOK 100 104.98 108.97 107.73 105.65U.S. USD 9.63 9.16 9.35 8.55U.K. GBP 12.47 11.68 11.88 11.51Switzerland CHF 100 975.08 912.42 940.06 877.19Japan JPY 100 8.87 8.10 8.52 7.74EMU countries EUR 10.75 10.40 10.53 10.17

FINANCIAL INSTRUMENTS, ACCOUNTING POLICIES FISCAL YEAR 2019IFRS 9 – Financial Instruments has been applied by the Group since 1 November 2018. The standard replaces IAS 39 – Financial Instruments: Recognition and Measurement. SAS has applied IFRS 9 retroactively from 1 November 2018 and has not restated comparative figures, with the exception of changes in the time value of options where the comparative periods have been recalculated and the opening balances on 1 November 2017 have been restated. The implementation of IFRS 9 resulted in a decrease in the Group’s shareholders’ equity as of 1 November 2018 of MSEK 11 net after tax. The following policies have been applied for fiscal year 2019:

Financial assetsFinancial assets are recognized in the consolidated balance sheet when the Group becomes a party under the contractual terms of the instrument. At the time of initial recognition, financial assets are measured at fair value and subsequently classified at amortized cost, fair value through other compre-hensive income (FVTOCI) or fair value through profit and loss (FVTPL). The classification of financial assets depends on the characteristics of the asset and the business model in which it is held.

The fair value of a financial asset is generally determined by reference to official market quotes. When market quotes are not available, the fair value is determined using generally accepted valuation methods, such as discounted future cash flows based on observable market inputs.

Amortized cost is calculated using the effective-interest method, where any premiums or discounts and directly attributable expenses and revenue are capitalized over the contract period using the effective interest rate. The effective interest rate is the rate that yields the instrument’s cost when calculating the present value of future cash flows.

Other financial assets at amortized cost Financial assets are classified as recognized at amortized cost if the contractual terms give rise to payments that are solely payments of principal and of interest on the principal amount outstanding, and the financial asset is held in a business model aimed at holding financial assets to collect contractual cash flows. With the exception of derivatives, all of the Group’s financial assets are recognized at amortized cost through application of the effective-interest method. For subsequent periods, the assets are measured at amortized cost reduced with impairment provisions.

Impairment of financial assetsThe Group’s financial assets measured at amortized cost are assessed for impairment based on expected credit losses (ECLs). Provisions for accounts receivable are always based on lifetime ECLs. If there is no expectation of collection, the full asset value is written off. Losses and write offs are recog-nized as expenses in the income statement.

Derivatives and hedge accountingThe Group uses derivatives to manage exposures related to fluctuations in interest rates, exchange rates and fuel prices. The derivatives used are mainly recognized pursuant to the rules for hedge accounting in IFRS 9. Group hedge instruments are designated as fair-value hedges and cash-flow hedges. Derivatives that do not meet the hedge accounting requirements are remeasured on an ongoing basis at FVTPL. Derivatives with positive values are recognized as current assets in the consolidated balance sheet, and derivatives with negative values are recognized as current liabilities.

For fair-value hedges, the effective and ineffective portions of the change in fair value of the derivative is recognized in net income for the year, together with the gain or loss on the hedged item attributable to the hedged risk.

When hedging projected cash flows, the effective portion of the change in fair value of the derivative outstanding is recognized in other comprehensive


MARKET AND STRATEGY





Note 1 continued

Financial assets Previous classification (IAS 39) New classification (IFRS 9) ExplanationOther long-term receivables / Accounts receivable / Other receivables

Loan receivables and accounts receivable Amortized cost Managed in a business model with the aim of holding until maturity. Payments are solely payments of principal and interest on the principal amount outstanding.

Derivatives Hedging instruments, derivatives Hedging instruments The effective portion of the change in the cash-flow hedge is recognized in other comprehensive income.

Derivatives Held for trading FVTPL Fair value through profit or loss, no change.Short-term investments Loan receivables and accounts receivable Amortized cost Managed in a business model with the aim of

holding until maturity. Payments are solely payments of principal and interest on the principal amount outstanding.

Cash and bank balances Loan receivables and accounts receivable Amortized cost Managed in a business model with the aim of holding until maturity. Payments are solely payments of principal and interest on the principal amount outstanding.

Other liabilities Other liabilities Amortized cost




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income until the underlying transaction is reflected in net income for the year, whereupon any deferred hedging gains or losses are restored in net income for the year. The ineffective portion of the change in fair value of a derivative used to hedge cash flow is recognized in net income for the year. Should hedged future transactions result in non-financial assets or liabilities, the gains and losses are included in the cost of the assets or liabilities upon initial recognition.

As a result of IFRS 9, the Group has changed its procedures related to the measurement of effectiveness and the time value of options designated in hedging relationships. For measurement of effectiveness, an overall assess-ment is conducted of whether or not the hedging relationship is effective. For options designated in a hedging relationship, new guidance applies with regard to changes in the fair value of the time value if only the intrinsic value is designated in the hedging relationship. The initial time value is treated as a cost for the hedging strategy and changes in the time value are recognized in other comprehensive income. Previously, these changes were recognized in profit or loss.

Financial liabilities and equityFinancial liabilities are initially measured at fair value and subsequently at amortized cost using the effective-interest method.

Accounts payableAccounts payable are expected to have short terms and are therefore cate-gorized as short-term liabilities where the interest effect is negligible. The liabilities are carried at nominal amounts with no discounts.

BorrowingsLong-term borrowings, i.e., liabilities with a tenor longer than one year, consist of interest-bearing liabilities to banks and credit institutions as well as bond

issues. Short-term borrowings comprise the current portion of interest- bearing long-term borrowings, i.e., the portion of the loans that is to be amortized in the coming fiscal years, as well as other current interest-bearing liabilities with a remaining tenor of less than one year.

Borrowings are initially recognized at fair value less transaction costs, and thereafter at amortized cost using the effective-interest method. The hedged risk related to long-term borrowings designated as fair-value hedges is measured at fair value.

Hybrid bondAt the closing date, shareholders equity included a MSEK 1,500 hybrid bond issued in October 2019. The hybrid bond net position recognized in equity amounted to MSEK 1,477, after issuing costs. The hybrid bond coupon is floating 3 month STIBOR plus a margin of 8.25% for the first five years, and thereafter steps up to 3 month STIBOR plus a margin of 13.25%. The hybrid bond is subordinated and only senior to the share capital. The hybrid bond has no maturity date and SAS controls the payment of interest and principal in the instrument, which is why this is classified as an equity instrument in its entirety according to IAS 32.

FINANCIAL INSTRUMENTS, ACCOUNTING POLICIES FISCAL YEAR 2018Prior to 1 November 2018, the Group applied IAS 39 – Financial Instruments: Recognition and Measurement. The comparative year (fiscal year 2018) in this annual report was prepared pursuant to IAS 39, with the exception of changes in the time value of options where the comparative years have been recalcu-lated pursuant to IFRS 9. The following policies applied for fiscal year 2018:

Financial assetsFinancial assets are divided into the following categories: Financial assets available-for-sale, financial assets remeasured at fair value in profit or loss, loan receivables and accounts receivable, and investments held to maturity. The categorization depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Loan receivables and accounts receivableReceivables in affiliated companies are categorized as loan receivables and accounts receivable, and are measured at amortized cost.

Accounts receivable are categorized as loan receivables and accounts receivable. Since the term of accounts receivable is expected to be 12 days, the value of each receivable is carried at its nominal amount with no discount. Accounts receivable are assessed individually for impairment and all impair-ment losses are recognized in profit or loss as other operating expenses.

Cash and cash equivalentsCash and cash equivalents comprise cash balances, cash deposits and liquid investments with maturities of three months or less that are readily convertible to known cash amounts and are subject to an insignificant risk of changes in value. The short-term investments and cash and bank balances items in the consolidated balance sheet comprise the Group’s cash and cash equivalents. Deposits and blocked funds are categorized as loans and ac-counts receivable, and other investments are categorized as financial assets held for trading.

Financial liabilities and equityFinancial liabilities and equity instruments are categorized according to their contractual provisions.

An equity instrument is any contract that represents a residual interest in the assets of the Group after deducting its liabilities. The proceeds from equity instruments issued by the Group are recognized less direct issuing costs. Financial liabilities represent contractual obligations and are recorded when the Group becomes contractually liable.

Accounts payableAccounts payable are categorized as other liabilities. Since the terms of ac-counts payable are expected to be short, the liabilities are carried at nominal amounts with no discounts.

BorrowingsLong-term borrowings, i.e., liabilities with a tenor longer than one year, consist of interest-bearing liabilities to banks and credit institutions as well as bond issues. Short-term borrowings comprise the current portion of interest- bearing long-term borrowings, i.e., the portion of the loans that is to be amortized in the coming fiscal years, as well as other current interest-bearing liabilities with a remaining tenor of less than one year.

All borrowings are categorized as other liabilities and initially recorded at fair value less direct transaction costs. Thereafter, borrowings are measured at amortized cost using the effective-interest method.


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Compound financial instrumentsThe components in a compound financial instrument (convertible bond) issued by Group are classified separately as financial liabilities and equity instruments respectively in line with the contract terms and definitions of a financial liability and an equity instrument. The conversion option, which will be regulated by the exchange of a specific cash amount for a defined number of the company’s own shares, is an equity instrument.

At the issue date, the debt component’s fair value is determined by discounting at the current market interest rate for an equivalent debt with no conversion option. This amount is recognized as a debt and then measured at amortized cost until the debt is extinguished on conversion or reaching its maturity date.

The conversion option is classified as an equity instrument and its value is determined by deduction of the debt component from the compound financial instrument’s fair value. This value is reported as equity and is not subsequent-ly revalued. No profit or loss is reported on conversion or when the conversion option expires.

Transaction costs directly attributable to the issue of the compound financial instrument are allocated proportionately to the debt or equity component based on the initial distribution of funds received. Transaction costs attributable to the equity component are recognized directly in equity. Transaction costs attributable to the debt component are included in the debt’s carrying amount and allocated over the term of the liability using the effective-interest method.

The convertible note issued in 2014 was redeemed on 1 April 2019 at a nominal value of MSEK 1,574.

Derivatives and hedge accountingThe Group holds various financial instruments to manage its exposure to foreign currency, interest-rate and fuel risks.

All derivatives are measured at fair value and recognized either as assets or liabilities depending on whether the fair value of the instrument is positive or negative.

The accounting for changes in fair value depends on whether or not the derivative has been designated and qualifies as an accounting hedge and on the type of hedge. If a derivative is designated as a hedging instrument in a fair-value hedge, the changes in the fair value of the derivative and the hedged item are recognized in profit or loss in the line of the consolidated income statement relating to the hedged item. If a derivative is designated as a hedg-ing instrument in a cash-flow hedge, the effective portion of changes in the fair value of derivative financial instruments is recognized in other compre-hensive income and accrued in the hedging reserve in equity. The ineffective portion of cash-flow hedges is recognized directly in the Group’s profit or loss. Amounts recognized in equity are reversed in the Group’s profit or loss in the periods when the hedged item is recognized in the Group’s profit or loss. For a derivative not designated as a hedging instrument, the gain or loss is recognized in profit or loss in the period when the change arose.

In order for hedge accounting to be applied, its effectiveness has to be demonstrated at inception and on an ongoing basis during the hedge period. A requirement for the hedging of forecast cash flows is that it is highly proba-ble that the forecast event will occur.

TANGIBLE FIXED ASSETSTangible fixed assets are recognized at cost less accumulated depreciation and any impairment. These assets are depreciated to their estimated residual values on a straight-line basis over their estimated useful lives. As the components of aircraft have varying useful lives, the Group has separated the components for depreciation purposes. Costs for routine aircraft maintenance as well as repair costs are expensed as incurred. Extensive modifications, including the obligatory major overhauls of engines, and improvements to fixed assets are capitalized and depreciated together with the asset to which the work is related over its remaining useful life. Investments in leased premises are amortized over their estimated useful lives, but not over a period exceeding the remaining leasing period for leased premises.

Income from the sale or disposal of a tangible fixed asset is calculated as the difference between the net realizable value and the carrying amount. The gain or loss that arises is recognized in profit or loss.

Depreciation is based on the following estimated periods of useful life:

Asset class DepreciationAircraft 20 years1 Spare equipment and spare parts 20 years1

Engine components (average) 8 years2 Workshop and aircraft servicing equipment 5–10 years Other equipment and vehicles 3–5 years Buildings 5–50 years

1) Estimated residual value after a useful life of 20 years is 10%.

2) Depreciation is based on the engines use.

LEASINGSAS has entered into finance and operating leases. Leasing contracts where the terms of the lease transfer substantially all the risks and benefits of the asset to SAS are recognized as finance leases. All other lease contracts are classified as operating leases.

The Group as lessee Finance leases – At the beginning of the leasing period, finance leases are recognized at the lower of the fair value of the lease’s asset and the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet under other loans. Lease payments are apportioned between financial expenses and reduction of the lease commitment so that a constant rate of interest is recognized on the remaining balance of the liability. The useful life of the asset corresponds to the Group’s policy for owned assets.

Sale and leaseback agreements are classified according to the above- mentioned principles for finance and operating leases. Gains on the sale and leaseback of property and equipment that gave rise to finance leases are deferred and allocated over the lease term. If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is implemented at fair value, the Group recognizes any profit or loss immediately.

Operating leases – Fees payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also distributed on a straight-line basis over the lease term.

SAS’ production model, which is based on smaller flows and regional traffic being flown by business partners, wet leases aircraft capacity from external operators. The lease agreements are classified as operating leases and the costs are allocated between lease expenses for aircraft, for the actual aircraft capacity and other operating expenses for wet-lease costs.

The Group as lessor Finance leases – Finance lease receivables are stated in the balance sheet at the net investment amount of the lease, which is calculated based upon the minimum lease payments and any residual value discounted at the interest rate implicit in the lease. Finance lease income is allocated to different accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

Operating leases – Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

INTANGIBLE ASSETSIntangible assets comprise goodwill and capitalized expenses for systems development. The Group is not engaged in any research and development (R&D) activity.

Intangible assets are recognized in the balance sheet when: • an identifiable, non-monetary asset exists,• it is probable that the future financial advantages that can be attributed to

the asset will accrue to the company, and• the cost of the asset can be calculated in a reliable manner.

Goodwill is recognized in the balance sheet as an intangible asset at cost less accumulated impairment losses. Goodwill represents the excess value over the fair value of the Group’s share of identifiable acquired net assets at the acquisition date, of the cost of an acquisition, any non-controlling interests and fair value at the acquisition date or earlier shareholdings.

Gains or losses on the disposal of an entity include the remaining carrying amount of goodwill relating to the entity sold.

Goodwill is assessed as having an indefinite useful life. Goodwill is allo-cated to the smallest possible cash-generating unit (CGU) and the carrying amount is tested at least once a year for any impairment. However, testing for impairment takes place more frequently if there are indications that a loss in value has occurred. A discounted cash-flow analysis is carried out based on the cash flows of the CGU and compares the carrying value of assets of the CGU with their recoverable amount. These cash flows are discounted at rates that the Group estimates to be the risk-affected weighted average cost of capital (WACC) for the particular businesses. Any impairment is recognized immediately in profit or loss.


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Development costs that do not meet the criteria specified above, regarding when intangible assets are recognized in the balance sheet, are expensed in the period they arise. Costs for systems development are recognized as an asset provided that they meet the criteria specified above. Capitalized devel-opment costs are amortized on a straight-line basis over the expected useful life of the asset, which amounts to between three and 15 years. Amortization of capitalized IT system costs is included in the depreciation/amortization item in the statement of income.

EMISSION RIGHTSAny emission rights received from the respective countries’ government agencies, without the need for payment of any consideration, are recognized at their nominal amounts, which in practice means that the intangible asset and the prepaid income are valued at zero. Any emission rights purchased for own uses are recognized as intangible assets under current assets at cost after impairment. A provision is recognized in the balance sheet commen-surate to the extent that emission rights used correspond to emission rights held. This provision is measured at the cost of the emission rights held. The provision is measured at the current market price with a corresponding cost in the statement of income commensurate to the extent emission rights used exceed the amount of emission rights held.

IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS WITH DETERMINABLE USEFUL LIVESThe Group continuously evaluates whether any indications exist of a need for impairment of any tangible and intangible assets with determinable useful lives to identify any potential need for impairment. If any such indication is identified, the recoverable amount of the asset is calculated (or as part of the CGU to which it belongs) to determine the extent of any impairment loss. The recoverable amount is defined as the higher of an asset’s fair value less selling costs and the value in use (VIU). If the estimated recoverable amount of the asset (or the CGU) is lower than its carrying amount, the carrying amount of the asset (or the CGU) is impaired. The recoverable amount is determined based on the type of asset.

At each balance-sheet date, a review is conducted to assess for indica-tions that any earlier impairment losses no longer exist or have improved. When such indications exist, the recoverable amount is recalculated and the carrying amount is increased to the lower of the recoverable amount and the carrying amount that the asset would have had if the previous impairment had not taken place.

EXPENDABLE SPARE PARTS AND INVENTORIESExpendable spare parts and inventories are carried at the lower of cost or net realizable value. Cost is calculated using the weighted average cost.

PROVISIONS AND CONTINGENT LIABILITIESProvisions are reported when the Group identifies legal or informal commitments as a result of historic events, where the outcome is probable, and where the financial resources required to settle these commitments can be estimated with reasonable certainty.

A restructuring obligation is considered to have arisen and a provision for the obligation is recognized when the Group has adopted a detailed and formal restructuring plan. The plan must have been communicated to affected parties and have been commenced or publicly announced.

REMUNERATION OF EMPLOYEESPensionsThe Group has various pension plans for its employees. These vary consid-erably due to different legislation and agreements on occupational pension systems in the individual countries. Previously, most personnel pension plans in Scandinavia were defined-benefit plans. In November 2012, new collective agreements were signed with aircraft crew. Among other things, the new agreements mean that the defined-benefit pension plans were, largely, re-placed with defined-contribution pension plans effective as of the first quarter of fiscal year 2014.

For pension plans where the employer has accepted responsibility for a defined contribution, the obligation to employees ceases when the contractual premiums have been paid. Where defined-benefit pensions have been agreed, the commitments do not cease until the contractual pensions have been paid. The liability or asset recognized in the balance sheet for defined-benefit pension plans is the current value of the defined-benefit obligation at the end of the reporting period after deduction of the fair value of plan assets. The defined-benefit plan obligation is calculated each year by independent actuaries using the projected unit credit method.

Pension costs for the year for defined-benefit pension plans comprise the present value of the current service cost plus net interest, which is calculated using the discount rate on the defined-benefit pension liability or pension assets, and recognized as a payroll expense in EBIT. All deviations in estimates are immediately recognized in other comprehensive income.

Termination benefitsTermination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes severance pay when such an obligation exists according to employment contracts or for termination as a result of an offer made to encourage voluntary redundancy.

LONG-TERM INCENTIVE PLANAt 13 March 2019, the Annual General Meeting in SAS resolved in line with the Board’s proposal to implement a long-term incentive plan for all full-time and part-time SAS employees (with the exception of Group Management). The incentive plan has not had any accounting impact as the performance condition (ROIC) has not been met.

REVENUE RECOGNITIONFrom 1 November 2018, SAS has applied IFRS 15 and implemented the standard using the modified retrospective approach, meaning that the opening balances at 1 November 2018 were adjusted without restatement for previous comparative periods.

IFRS 15 establishes a new principle-based model of recognizing revenue from customer contracts. It introduces a five-step model that requires revenue to be recognized when control over goods and services are transferred to the customer. All of the Group’s customer contracts have been analyzed using the five-step model. The performance obligations identified are fulfilled at a point in time that corresponds to the point when revenue was recognized under the previous standard. Since the transaction price for the services is unchanged and allocated to the identified performance obligations, the implementation of IFRS 15 entailed no significant change in revenue recognition.

The implementation of IFRS 15 resulted in a decrease in the Group’s share-holders’ equity as of 1 November 2018 of MSEK 16 net after tax. The following policies have been applied for fiscal year 2019:

Passenger revenueWhen SAS or another airline provides the transportation, in other words the flight, the Group meets its performance obligation toward the customer and the passenger revenue is recognized in the statement of income. During the period from the sale of an airline ticket until the completion of the flight, airline tickets sold are recognized as a short-term unearned transportation revenue liability in the consolidated balance sheet. The Group assesses the estimated unearned transportation liability on an ongoing basis. More information is available under “Other traffic revenue.”

Rebooking fees, i.e. fees for changing for example the time or destination of a booked airline ticket, are recognized as revenue in conjunction with the actual flight taking place. Previously, these were recognized in conjunction with the rebooking event.

Charter revenueSAS has charter flight agreements with certain customers. As with passenger revenue, the Group discharges its performance obligation to the customer when transportation has been provided. Accordingly, charter revenue is recog-nized in the statement of income when the transportation is provided.

Mail and freight revenueThe Group provides cargo services on both passenger planes and commercial cargo flights. The performance obligation to the customer is discharged in conjunction with the provision of transportation. Accordingly, mail and freight revenue is recognized in the statement of income when the transportation is provided.

Other traffic revenueOther traffic revenue mainly includes preseating, excess baggage, unused tickets and revenue adjustments. Preseating and excess baggage are examples of ancillary revenue that are closely linked to air travel. These are recognized as revenue in conjunction with the actual flight.

The Group prepares monthly assessments of unutilized airline tickets. Unutilized and expired tickets are recognized as other traffic revenue based on historic usage data for unutilized tickets for the last 24 months. Any differences between previous months’ assessments and actual outcomes are recognized in the statement of income.




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The Group periodically evaluates the estimated short-term unearned transportation revenue liability and records any resulting adjustments in other traffic revenue in the period in which the assessments are completed. These adjustments relate primarily to refunds, exchanges, transactions with other air-lines and other items for which final settlement occurs in periods subsequent to the sale of the related tickets at amounts other than the original sales price.

Other operating revenueOther operating revenue mainly includes revenue from in-flight sales, ground handling services, technical maintenance and sales of EuroBonus points.

In-flight sales are recognized as revenue in conjunction with the actual sale. Revenue from the performance of ground handling services and technical mainte-nance is recognized when the services are performed. This revenue is recognized at the same time and with the same amounts as with the previous standard.

Sales of EuroBonus points to credit card partners are recognised as revenue in the same period that EuroBonus members use their credit cards and a EuroBonus liability arises in the consolidated balance sheet. Further information on the EuroBonus liability follows.

Loyalty program – EuroBonusMembership in the Group’s EuroBonus loyalty program enables customers to earn bonus points when they fly, rent a car, stay at a certain hotel, use a EuroBonus credit card, and when making purchases at the EuroBonus store or other selected stores.

EuroBonus members primarily earn points through purchasing airline tickets or when using a EuroBonus credit card. As customers earn points, the EuroBonus liability increases in the consolidated balance sheet together with a corresponding decrease in revenue. The portion of the price allocated to the EuroBonus liability is measured at the stand-alone price of the points relative to the stand-alone price for the service or goods on which the points were earned, for example airline tickets. When the points are used by EuroBonus members, the liability on the consolidated balance sheet decreases together with a corresponding increase in revenue. Accordingly, used EuroBonus points are recognized as revenue when the service or goods for which the points are used are transferred to the EuroBonus member.

Contractual assets and liabilitiesIFRS 15 has introduced the terms “contractual assets” and “contractual liabilities”. The Group presents contracts in the balance sheet as contractual liabilities or contractual assets depending on the relationship between the Group’s performance and the customers’ payments at the reporting date. Accrued income is included under contractual assets, since the Group meets the performance requirement prior to receiving payment from customers. The unearned transportation liability and the loyalty program are recognized as contractual liabilities since payments are received from customers before the performance obligation is discharged by the Group. Information about the dis-charge of performance obligations can be found earlier in this section under the headings “Passenger revenue” and “Loyalty program – EuroBonus.”

As before, the unearned transportation liability is presented on a separate line in the consolidated balance sheet, while the loyalty program is presented under other liabilities (long-term). Last year, the loyalty program was presented under other provisions. Refer to Note 29 for new disclosures by the Group pertaining to contractual assets and liabilities.

BORROWING EXPENSESBorrowing expenses that arise in operations are expensed in the period in which they are incurred. Borrowing expenses on aircraft pre-delivery payments (PDPs) are capitalized as part of the process of obtaining qualified production resources. If a decision is made to sell and lease back an asset, capitalization of interest expense ceases. Amortization of capitalized borrow-ing expenses commences when aircraft are put into service, as per the main principle for aircraft.

TAXESCurrent tax for the period is based on net income for the period, adjusted for non-tax-deductible costs and non-taxable income. The current tax is calculated on the basis of tax rates applying on the closing date.

Deferred tax is recognized according to the balance sheet method whereby temporary differences, differences between the recognized and fiscal value of assets or liabilities, result in a deferred tax asset or deferred tax liability. Deferred tax liabilities are recognized for all temporary differences liable to tax, while deferred tax assets are recognized to the extent it is probable that a taxable surplus will be created against which the deductible temporary differ-ence can be utilized or before the right to utilize the loss carryforward is lost.

Deferred tax liabilities are recognized for all taxable temporary differences attributable to investments in subsidiaries and affiliated companies except in cases where the Group can control the timing of reversal of the temporary differences, and it is probable that such reversal will not take place in the foreseeable future.

Deferred tax is estimated on the basis of the tax rates and fiscal regulations that have been decided or announced as of the closing date. Deferred tax is expensed, except when it relates to items charged or credited in other com-prehensive income or directly in equity, in which case the deferred tax is also dealt with in other comprehensive income or directly in equity, respectively.

Deferred tax assets and deferred tax liabilities are recognized net if the items pertain to the same tax authority.

CRITICAL ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINTYThe preparation of financial statements and application of accounting policies are often based on management’s assessments, or on estimates and assump-tions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. These estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recognized in the period in which the change is made if the change affects only that period, or in the period in which the

change is made and future periods if the change affects both the current and future periods.

Below is an overall description of the accounting policies affected by such estimates or assumptions that are expected to have the most substantial im-pact on the Group’s reported earnings and financial position. For information about the carrying amount on the closing date, see the balance sheet with accompanying notes.

Estimated useful lives of tangible fixed assets The Group Management periodically reviews the appropriateness of the useful lives of its tangible fixed assets. The review is based on the current condition of the assets, the estimated period during which they will continue to bring economic benefit to the Group, historic information on similar assets and industry trends.

Any changes in the useful life of property and equipment are recognized prospectively in profit or loss.

Impairment of assetsThe Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets are impaired. In making the impair-ment assessment, assets that do not generate independent cash flows are allocated to an appropriate CGU.

Management is required to make certain assumptions in estimating the value of the assets, including the timing and value of cash flows to be generated from the assets. The cash-flow projections are based on reasonable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the remaining useful life of the asset and are based on the most recent financial plan that management has approved. Due to its subjective nature, these estimates will likely differ from future actual results of operations and cash flows, and any such difference may result in impairment in future periods.

PensionsPension assumptions are an important element in the actuarial methods used to measure pension commitments and value assets, and can significantly affect the recognized pension obligation, pension assets and the annual pension cost. The most critical assumptions are the discount rate, inflation and expected salary adjustments.

The measurement to be applied under IAS 19 when measuring defined- benefit plans is known as the projected unit credit method. This method requires several assumptions (actuarial parameters) for calculating the present value of the defined-benefit obligation. Actuarial assumptions com-prise both demographic and financial assumptions. Since assumptions must be neutral and mutually compatible, they should be neither imprudent nor overly conservative. They should reflect the economic relationships between factors such as inflation, rates of salary increase, the return on plan assets and discount rates. This means that they should be realistic, based on known financial relations and reflect SAS’ best assessment of the factors that will determine the ultimate cost of providing post-employment benefits, that is pension costs.




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In calculating pension obligations, the current service cost and return on plan assets, locally set parameters are applied in the respective countries on the basis of the local market situation and expected future trends. This means that the parameters are based on market expectations at the end of the re-porting period regarding the time period in which the obligation will be settled.

The discount rate has been determined on the basis of market yields on high-quality corporate bonds (preferably mortgage bonds with a minimum AA rating). The tenor of the bonds reflects the estimated timing and size of pension payments (duration) as well as the currencies these payments are expected to be made in.

Other financial assumptions are based on anticipated developments during the term of the obligation. The assessment of future salary adjustments corresponds to the assumed rate of inflation in the respective countries and life expectancies are set under DUS14 for Sweden and K2018 for Norway, refer to Note 15 for additional information.

The interest expense on the obligation and the expected return on plan assets are reported as “net interest,” which is calculated using the discount rate. SAS classifies this net interest as a payroll expense and recognizes the net interest expense in profit or loss.

Deviations can arise if the discount rate changes (a lower discount rate increases the present value of the pension liability and the annual pension cost), or if actual inflation levels, salary adjustments and life expectancies de-viate from the Group’s assumptions. Any change in these assumptions could potentially result in a significant change to the pension assets, obligations and pension costs in future periods.

During the year, the discount rate was lowered for all countries. The total impact of changed discount rates entailed a negative impact on other compre-hensive income of SEK 2.2 billion. The return on plan assets has been higher than the discount rate, which entailed a positive impact on other comprehensive income of SEK 0.5 billion. Moreover, a negative item of SEK 0.2 billion was recog-nized under the experience gains/losses item as a result of full index adjustment.

Sensitivity to changes in individual parameters can be estimated as follows: A one percentage point change in the discount rate of interest has approxi-mately a SEK 3.4 billion impact on the obligation and a one percentage point change in the inflation assumption has an impact of about SEK 3.3 billion.

Deferred taxesThe Group recognizes deferred tax assets at each balance-sheet date to the extent that it is probable that they will be utilized in future periods. This determination is based on estimates of future profitability. A change in these estimates could result in a decrease in deferred tax assets in future periods for assets that are currently recognized in the consolidated balance sheet. In estimating levels of future profitability, historical results of operations in recent years are considered and, if necessary, the implementation of prudent and feasible tax planning strategies to generate future profitability are considered. If future profitability is less than the amount that calculated in determining the deferred tax asset, then a decrease in deferred tax assets will be required, with a corresponding charge in profit or loss, except in cases where it is related to items recognized directly in equity. If future profitability exceeds the level that has been assumed in calculating deferred tax assets, an additional deferred

tax asset can be recognized, with a corresponding credit in profit or loss, except to the extent that the deferred tax arises from a business combination.

A change in these estimates could also result in the impairment of deferred tax assets in future periods for assets that are currently recognized in the balance sheet.

Undertakings pertaining to aircraft under operating leasesSAS makes ongoing provisions related to use for undertakings arising in connection with aircraft under operating leases. The undertakings primarily pertain to engines, but also include landing gear, air frames and APUs. The financial impact is complex to assess as it depends on a large number of factors. Since provisions are made on an ongoing basis for larger mandatory overhauls of engines, landing gear, air frames and APUs, the risk of a return having a material impact on the Group’s earnings is reduced.

LitigationsThe Group is involved in litigations and other claims in the ordinary course of its business activities. Management judgment is required in determining the likelihood of the outcome. The actual effects of the outcome could differ from the management’s estimate, which would impact the Group’s earnings (see also, the Report by the Board of Directors: Legal issues).

NEW AND AMENDED STANDARDS AND INTERPRETATIONS THAT HAVE NOT ENTERED FORCE AND HAVE NOT BEEN ADOPTED EARLY BY THE GROUPThe following new and amended standards, agenda decisions and interpre-tations have been issued and are mandatory for the accounting of the Group for fiscal years beginning on or after 1 November 2019. SAS has not early adopted any of the new standards.

Compensations for delays or cancellationsThe IFRS interpretation committee (IFRIC, IC) published an agenda decision in September 2019 regarding Compensation for delays or cancellations (IFRS 15).The IFRIC concluded in its decision that customer compensation for delays or cancellations is a variable consideration in the contract. Therefore, it should be recognized as an adjustment to revenue. SAS has previously accounted for customer compensation under other operating expenses. In accordance with the IC’s decision, SAS has analyzed the effects and will in future reports reclassify customer compensation for delays and cancellations from operat-ing expenses to revenue, in accordance with the IFRIC’s agenda decision. The amount reclassified for fiscal year 2019 amounted to MSEK 624.

IFRS 16 – Leases From 1 November 2019, SAS has adopted the new standard IFRS 16 Leases, using the modified retrospective approach. IFRS 16 replaces the previous standard, IAS 17 Leases. The previous classification of each lease as either an operating lease or a finance lease will be replaced by a model whereby the lessee recognizes an asset (a right-of-use asset) and a financial liability in the balance sheet. The financial liability is recognized at an amount corresponding

to the present value of future lease payments for a leased asset. As a result of SAS’ transition approach, all right-of-use assets are on transition initially meas-ured at an amount equal to the financial lease liability at the date of transition plus prepaid lease expenses recognized at 31 October 2019. The lease expense previously recognized in the income statement is replaced by an expense for depreciation of the right-of-use asset and an interest expense for the financial liability. SAS has carried out an extensive project ahead of the implementation of IFRS 16, since the impact on the financial statements is significant. The impact on the financial statements is described in further detail below.

Impact on balance sheet and statement of incomeThe main types of assets leased by SAS are, in order of materiality, aircraft, properties and ground handling equipment. Aircraft, including engines, represent approximately 80% of the right-of-use assets recorded at the transition date. The remaining part is mainly split between properties (~17%) and ground handling equipment (~3%).

At 1 November 2019, SAS’ assets increased SEK 17 billion due to the recognition of right-of-use assets. Lease liabilities and liabilities relating to restoration costs increased with the same amount. Adjustments have been made for netting of prepaid lease expenses against lease liabilities. Initial application of IFRS 16 had no impact on shareholders’ equity on the transition, since the change in assets corresponds to the change in liabilities.

A major impact from applying IFRS 16 is that SAS will be exposed to exchange- rate fluctuations. Most of the right-of-use assets will be denominated in SEK, but the corresponding lease liabilities are denominated in foreign currencies. Lease liabilities relating to aircraft are denominated in USD, while properties and ground handling equipment mainly are denomi-nated in SEK, NOK and DKK. As aircraft represent approximately 80% of the increase in liabilities, the currency exposure from restating USD liabilities into SEK is significant. From 1 November 2019, SAS has adjusted the hedging policy to better manage this risk.

In SAS’ income statement, right-of-use assets are depreciated on a straight-line basis. Interest expenses relating to the lease liabilities are at their highest at the beginning of the lease term and decrease as the lease liability is paid down. Currently, operating lease charges for aircraft, properties and ground handling equipment are expensed over the lease term, primarily on a straight-line basis, and recognized in EBIT as lease expenses for aircraft and other operating expenses. Given this change in pattern of expenses where more expenses, due to the interest component, are recognized earlier in the lease term, SAS’ results are expected to be negatively impacted in fiscal year 2020 as a result of IFRS 16. The negative impact on income before tax (EBT) is estimated to be MSEK 400–500. This estimate does not include currency effects on lease liabilities and is based on assumptions on development in the lease portfolio. Over the lease term, the expenses following the adoption of IFRS 16 are equal to the expenses reported under IAS 17.

Impact on key ratiosAs IFRS 16 has a significant impact on the income statement and balance sheet, SAS has reviewed the key ratios to ensure their continued relevance. Following SAS’ transition approach, financial reporting published by SAS during




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FY 2020 will not include restated comparative information for FY 2019. Since the Group uses rolling 12 month numbers in the calculation of many key ratios, and a full rolling 12 month income statement according to IFRS 16 will not be available until FY 2021, moreover the calculation of many key ratios in FY 2020 will be based on financial statements excluding IFRS 16. Key ratios that are calculated on closing balances, and not rolling 12 month numbers, will be based on the financial statements and IFRS 16 figures in FY 2020.

In FY 2021 some key ratios will be calculated in a different way, since some metrics are no longer relevant. The two most significant changes relate to key ratios where the calculation includes the use of lease expenses or capitalized leasing costs, net (*7), average. Lease expenses will no longer be presented in the income statement, and the use of capitalized leasing costs, net (*7), average will be replaced by lease liabilities in the balance sheet. More detailed information of changes in key ratios will be presented during FY 2020.

SAS’ ACCOUNTING POLICY FOR IFRS 16SAS will apply IFRS 16 to all leases. IFRS 16 permits exceptions for short-term leases and where the underlying asset is of low value (<TUSD 5). Short-term leases are leases that at the commencement date have a lease term of 12 months or less and do not include a purchase option. Lease payments relating to short-term leases or low value leases will be recorded in the income state-ment over the lease term, primarily on a straight-line basis, and recognized in EBIT as lease expenses.

AIRCRAFTLease termThe lease term used for aircraft lease agreements is the non-cancellable peri-od stated in the lease agreement. Some lease agreements contain extension options or options to purchase the asset, and options are taken into account in the lease term if the Group is reasonably certain to exercise these options. The Group does not generally include options in the lease term, since there is a significant uncertainty as to whether they will be exercised. Closer to the end of the lease term and the relevant option, the Group has a better under-standing of whether it is beneficial to start negotiations to keep the aircraft for an extended period. If the Group decides to use an extension option, or an option to purchase the asset, the lease liability will be remeasured. Other facts indicating that an option could be used are major modifications of the aircraft, such as a cabin refreshment.

Discount rateAt the transition date the Group has used the practical expedients in IFRS 16, where a single discount rate is applied to a portfolio of leases with reason-ably similar characteristics. The rate used is the average borrowing rate for asset-backed aircraft financing at 1 November 2019. Going forward, for new leases, the Group will use the interest rate implicit in the lease. Aircraft lease agreements do not clearly define the implicit interest rate as defined by IFRS 16. Since the fair values of the aircraft are provided by third parties, SAS has decided to calculate the interest rate to be used for discounting the lease liabilities based on fair values available for the aircraft. The rate is calculated per contract. The rate implicit in the lease is defined as the rate that causes

the sum of the present value of lease payments and the present value of the residual value of the underlying asset at the end of the lease to equal the fair value of the underlying asset.

Sale & LeasebackSometimes SAS sells an aircraft to a lessor and leases back that asset from the lessor. In each transaction the Group determines if the transfer to the lessor qualifies as a sale according to IFRS 15. If the lease agreement between SAS and the lessor includes an option to buy back the aircraft, the initial transfer of the asset from SAS does not generally qualify as a sale. In that situation, the Group continues to record the aircraft as owned in the balance sheet with the corresponding financial liability applying IFRS 9. If the transfer qualifies as a sale, SAS applies the sale and leaseback rules in IFRS 16, whereby the right-of-use asset arising from the leaseback is measured at the proportion of the previous carrying amount of the asset that relates to the right of use retained by SAS. This means that only part of any gain/loss that relates to the transfer of the aircraft is recognized in profit or loss.

Costs for restoring the assetSAS has an obligation to return the leased aircraft and their engines according to redelivery conditions specified in the lease agreement. If the condition of the aircraft and its engines, at the time of redelivery, differs from the agreed rede-livery condition, the Group needs to settle the difference in cash to the lessor or maintain the aircraft and its engines so that it meets the agreed conditions.

Under IFRS 16, SAS has divided the maintenance costs into two main groups: costs incurred independent of the usage of the aircraft and costs incurred dependent on the usage of the aircraft.

Costs incurred independent of the usage of the aircraft are included in the right-of-use asset and provisions at the commencement date. These costs include the final check and painting required on return of the aircraft.

For costs incurred dependent on the usage of leased aircraft, SAS makes ongoing provisions related to the use. Please see detailed information in the section “Critical Accounting Estimates and Key Sources of Estimation Uncer-tainty” in Note 1. Maintenance costs for owned aircraft are capitalized and depreciated together with the asset to which the work is related. See more information in the section “Tangible fixed assets” in Note 1.

Wet LeaseSAS wet leases aircraft capacity from external operators. Until 1 Novem-ber 2019, the costs associated with these lease arrangements have been allocated between lease expenses for aircraft, for the actual aircraft capacity, and other operating expenses for wet-lease costs. IFRS 16 states that for a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as a lease separately from non-lease compo-nents of the contract, unless the entity applies a practical expedient in IFRS 16. The Group accounts for each lease component separately from non-lease components. The consideration in the contract that has been allocated to the aircraft has been done based on the relative stand-alone price of the aircraft and the aggregate stand-alone price of the wet-lease services.

The lease term used for wet leased aircraft is the non-cancellable period

stated in the lease agreements. Some contracts contain options, but they have not been included since there is a significant uncertainty to whether they will be exercised.

There is no material return obligation relating to the wet leased aircraft.

PROPERTIESLease termThe lease term used for property lease contracts is the non-cancellable period stated in the lease agreements. Options to extend the lease term are not includ-ed, since there is a significant uncertainty as to whether they will be exercised.

Discount rateFor property leases, the following discount rates are used:• For lease agreements with fixed interest rates, SAS applies its average

financing cost as the rate to be used for discounting the lease liabilities. The average financing cost is calculated as the relevant swap rate for the maturity of the contract plus SAS’ average credit spread.

• For lease agreements with floating interest rates, SAS applies the sum of the credit spread defined in the contract plus the relevant swap rate for the maturity of the contract as the rate to be used for discounting lease liabil-ities. If the spread in the contract is unknown, SAS’ average credit spread will be applied as the spread.

Costs for restoring the assetThere is no material return obligation relating to the leased properties.

GROUND HANDLING EQUIPMENTLease termThe lease term used for ground handling equipment lease contracts is nor-mally the non-cancellable period stated in the lease agreements. Some lease agreements contain extension options, and they have been included if the Group’s assessment is that the options will be exercised.

Lease and non-lease componentsAs mentioned above, an entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract, unless the entity applies a practical expedient in IFRS 16. The Group will account for each lease component separately from non-lease components based on the relative stand-alone price for the lease assets.

Discount rateFor ground handling equipment leases, the following discount rates are used:• For lease agreements with fixed interest rates, SAS applies its average

financing cost as the rate to be used for discounting the lease liabilities. The average financing cost is calculated as the relevant swap rate for the maturity of the contract plus SAS’ average credit spread.

• For lease agreements with floating interest rates, SAS applies the sum of the credit spread defined in the contract plus the relevant swap rate for the maturity of the contract as the rate to be used for discounting lease liabil-ities. If the spread in the contract is unknown, SAS’ average credit spread will be applied as the spread.




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MARKET AND STRATEGY





NOTE 2 REVENUE

FY19 FY18Traffic revenue: Passenger revenue 35,479 34,077 Charter 2,117 1,957 Freight and mail 1,506 1,632 Other traffic revenue 2,936 2,701Other operating revenue: In-flight sales 263 261 Ground handling services 1,236 1,183 Technical maintenance 169 211 Terminal and forwarding services 394 361 Sales commissions and charges 622 618 Other operating revenue 2,014 1,717Total 46,736 44,718

FY19 FY18 Salaries & other

remunera-tion

Soc. sec. exp. (of

which pen-sion cost)1

Salaries & other

remunera-tion

Soc. sec. exp. (of

which pen-sion cost)1

SAS AB 36 17 (8) 22 14 (7)SAS Consortium 4,671 1,628 (656) 4,465 1,491 (584)Other subsidiaries 2,589 554 (211) 2,393 522 (192)SAS Group, total 7,296 2,199 (875) 6,880 2,027 (783)1) The pension cost for all CEOs and other senior executives of SAS Group companies

amounted to MSEK 18 (15).

A breakdown of the salaries and other remuneration of Board members, CEOs, other senior executives and other employees is provided in the table below.

FY19 FY18 Board, CEO

& senior executives

(of which variable

salary)Other

employees

Board, CEO & senior

executives (of which variable

salary)Other

employeesSAS AB 31 (–) 4 20 (–) 2SAS Consortium 35 (2) 4,636 22 (–) 4,444Ground handling operations 13 (–) 2,447 12 (–) 2,267SAS Cargo 9 (–) 91 10 (–) 81Other subsidiaries 7 (–) 23 8 (–) 14SAS Group, total 95 (2) 7,201 72 (–) 6,808

Pension costs FY19 FY18Defined-benefit pension plans -9 -90Defined-contribution pension plans 871 873Total 862 783

REMUNERATION AND BENEFITS PAID TO THE BOARD, PRESIDENT AND OTHER SENIOR EXECUTIVESThe fees and other remuneration paid to Board members of SAS AB are determined by the Annual General Shareholders’ Meeting (AGM), which also approves the policies applied for the remuneration of senior executives.

OTHER ASSETSLease contracts that individually, or by asset class, are not material to the Group have been excluded from the right-of-use asset and lease liability. These contracts include leasing cars, smaller IT equipment and office equipment.

PARENT COMPANY’S ACCOUNTING POLICIESThe Parent Company has prepared its financial statements according to the Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s recommendation RFR 2 Accounting for Legal Entities as well as applicable statements from the Swedish Financial Reporting Board. Under RFR 2, the Parent Company, in preparing the annual financial statements for the legal entity, applies all EU-approved IFRSs and statements insofar as this is possible within the framework of the Swedish Annual Accounts Act and the Swedish Pension Obligations Vesting Act and with respect to the connection between accounting and taxation. The recommendations specify which exceptions and additions are to be made from and to IFRS.

THE DIFFERENCES BETWEEN THE GROUP’S AND THE PARENT COMPANY’S ACCOUNTING POLICIES ARE LISTED BELOW: Pensions: Current pension premiums are recognized as an expense. Shares in subsidiaries and affiliated companies: Recognized at cost. Acquisition-related expenses for subsidiaries that are expensed in the consolidated financial statements, are included as part of the cost for holdings in subsidiaries. Other shares and participations: Recognized at cost.




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SAS recognizes passenger and charter revenue when the transportation has been performed, cargo revenue when the transportation has been completed and other revenue when the goods have been delivered or the service per-formed. The performance obligations identified are fulfilled at one point in time.

The Group’s various revenue sources are shown above and refer to Note 42 for a breakdown of revenue by geography.

NOTE 3 PAYROLL EXPENSES

AVERAGE NUMBER OF EMPLOYEESIn fiscal year 2019, the average number of employees in the SAS Group was 10,445 (10,146). A breakdown of the average number of employees by country is provided in the table below. The average number of employees totaled 3,372 (3,357) in Denmark, 2,813 (2,711) in Norway, and 3,978 (3,816) in Sweden.

FY19 FY18

Men Women Men WomenDenmark 2,269 1,103 2,286 1,071Norway 1,698 1,115 1,676 1,035Sweden 2,453 1,525 2,259 1,557Other countries 125 157 116 146Total 6,545 3,900 6,337 3,809Total men and women 10,445 10,146

GENDER BREAKDOWN OF SENIOR EXECUTIVES IN THE GROUP

31 Oct 2019 31 Oct 2018Closing-

date totalof which,

menClosing-

date totalof which,

menBoard members 39 64% 37 65%President and other senior executives 32 81% 38 76%

SALARIES, REMUNERATION AND SOCIAL SECURITY EXPENSESThe SAS Group’s total payroll expenses amounted to MSEK 9,495 (8,907), of which social security expenses comprised MSEK 1,324 (1,244) and pensions MSEK 875 (783).

Salaries, remuneration and social security expenses included restructuring costs of MSEK 230 (105).


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Note 3 continued

BOARD OF DIRECTORSAt the AGM of SAS AB on 13 March 2019, fees were set for the remuneration of Board members and for work on Board committees as follows:

Board Chairman TSEK 630

Board First Vice Chairman TSEK 420

Other Board members (9) TSEK 320 per member

Deputy employee representatives (6) TSEK 1 study fee/Board meeting

TSEK 3.5 fee/Board meeting on participation

Chairman of Audit Committee TSEK 100

Other members of Audit Committee (2) TSEK 50

Chairman of Remuneration Committee TSEK 80

Other members of Remuneration Committee (1) TSEK 27

With the exception of the employee representatives and their deputies, no Board member was employed by the SAS Group in fiscal year 2019. No Board member not employed by the SAS Group received any remuneration or ben-efit from any SAS Group companies beyond customary airline-industry travel benefits and the fees received for board and committee duties.

POLICIESThe following remuneration policies adopted by the 2019 AGM have been applied in fiscal year 2019 in regard to senior executives in the SAS Group. In this connection, senior executives refers to the President and the other members of the SAS Group Management.

Total remuneration should be market-based and competitive and relate to responsibility and authority. Remuneration consists of fixed salary, variable remuneration by separate agreement, and other benefits and pension. The guidelines apply to employment contracts entered into after the 2019 AGM and to changes made to earlier employment contracts.

Remuneration of senior executives is to consist of a fixed annual salary. It reflects the position’s requirements concerning skills, responsibility, complexity and how it contributes to achieving the business objectives. It also reflects performance and can therefore be both individual and differentiated. In addition to fixed salary, senior executives reporting directly to the CEO, by separate agreement, can receive variable salary corresponding to 20% of fixed salary on reaching the decided performance targets on condition that their fixed salaries are frozen until the salary review year 2021. Other benefits, including company car and health insurance, are market-based and only constitute a limited part of the total remuneration.

Pension benefits are to be defined-contribution, with premiums not exceeding 30% of the fixed annual salary.

For the CEO and other Group Management, the notice period is six months in the event the senior executive resigns and 12 months in the event the termination of employment is by the company. In the event notice is given by the company, and in certain specific cases, by the employee, severance pay is payable in an amount corresponding to a maximum of one year’s fixed salary less any remuneration received from new employment or assignments.

The Board can depart from the guidelines if, in an individual case, particular reasons exist for so doing.

PRESIDENT AND CEOPresident and CEO Rickard Gustafson has the following remuneration compo-nents in his employment contract: • An annual salary, which is subject to salary review in January of each year.

The annual salary was revised in 2019 and amounts to TSEK 12,468. A defined-contribution pension plan where 40% of the fixed salary is paid as premiums to an agreed pension insurance. The retirement age is 65. The remuneration policies adopted by the AGM permit the Board to deviate from the guidelines on an individual basis if particular reasons exist for so doing. In this case, the Board deems sufficient reason exists to set aside the policy of a maximum pension premium of 30%, since current benchmarking of CEO salaries in Sweden motivate a pension premium of 40% and total compensation to the CEO Rickard Gustafson in the form of annual salary and pension benefits can thereby be considered to be on a par with market rates.

• Other benefits include company car, travel benefits, health insurance and group life insurance.

• The notice period is six months in the event the President resigns and 12 months if employment is terminated by SAS AB. Severance pay for the President in the event employment is terminated by SAS AB for reasons other than material breach of contract, gross neglect of his duties as President or criminal acts against the SAS Group is payable in an amount equivalent to 12 months’ salary. Should new employment be obtained within 12 months of employment ending, the severance pay awarded is reduced by an amount corresponding to the remuneration received from the new position.

DEPUTY PRESIDENTDuring fiscal year 2019, the SAS Group had two deputy presidents, Göran Jansson (CFO) and Lars Sandahl Sørensen (COO). Göran Jansson has the following remuneration components in his employ-ment contract:• An annual salary, which is subject to salary review in January of each year.

In fiscal year 2019, the annual salary was unchanged at TSEK 4,800.• A defined-contribution pension plan where 29.8% of salary is paid into a

chosen insurance plan. The retirement age is 65.• Other benefits include company car, travel benefits, health insurance and

group life insurance.• The notice period is six months in the event that Göran Jansson resigns

and 12 months if employment is terminated by SAS AB. Severance pay is payable to the deputy president in the event employment is terminated by SAS AB for reasons other than material breach of contract, gross neglect of the deputy president’s duties or criminal acts against the SAS Group in an amount equivalent to 12 months’ salary, with offsetting against income from any other appointment or engagement. Severance pay is also payable on the resignation of a senior executive when the responsibilities or author-ities of the senior executive are materially changed through organizational changes. However, severance pay in the above case is not payable if the senior executive is offered another relevant position in the SAS Group.

• Göran Jansson stepped down from his position as of 30 September 2019.

Lars Sandahl Sørensen has the following remuneration components in his employment contract:• An annual salary, which is subject to salary review in January of each year.

In fiscal year 2019, the annual salary was unchanged at TDKK 4,450.• A variable salary corresponding to 20% of fixed salary on reaching the

decided performance targets is payable on condition that fixed salary is frozen until the salary review year 2021.

• A defined-contribution pension plan where 30% of salary is paid into a chosen insurance plan. The retirement age is 65.

• Other benefits include company car, travel benefits, health insurance and group life insurance.

• The notice period is six months in the event that Lars Sandahl Sørensen resigns and 12 months if employment is terminated by SAS AB. Severance pay is payable to the Deputy President in the event employment is termi-nated by SAS AB for reasons other than material breach of contract, gross neglect of the Deputy President’s duties or criminal acts against the SAS Group in an amount equivalent to six months’ salary, with offsetting against income from any other appointment or engagement. Severance pay is also payable on the resignation of a senior executive when the responsibilities or authorities of the senior executive are materially changed through organizational changes. However, severance pay in the above case is not payable if the senior executive is offered another relevant position in the SAS Group.

• Lars Sandahl Sørensen stepped down from his position as of 31 August 2019.

OTHER SENIOR EXECUTIVESThe remaining current members of Group Management have defined-contri-bution pension plans where a pension provision of up to 30% of fixed base salary is made. The retirement age is 65 for all of the current members of the Group Management. The notice period for all other members of Group Man-agement is up to 12 months in the event employment is terminated by SAS AB and six months in the event the employee resigns.

Severance pay for these senior executives is set according to the same policies as for the current deputy presidents, that is with an amount corresponding to up to 12 months.

OTHERFor other standard managerial contracts at the SAS Group, total remuner-ation must be market-based and competitive and must be in relation to responsibility and authority.

In fiscal year 2019, total remuneration comprised fixed salary, other bene-fits and pension. Some 30 managers have participated in an annual incentive system for 2019.

Moreover, a variable remuneration model was introduced for manage-ment and employees in the sales organization in 2013. The variable salary component is based on outcomes in relation to predetermined individual sales targets that are set in a target contract and is capped at two months’ salary.




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MARKET AND STRATEGY





DISCUSSION AND DECISION-MAKING PROCESSThe issue of the Directors’ fees is discussed by the Nomination Commit-tee, which consists of representatives elected at the AGM. The Nomina-tion Committee presents its proposal concerning Directors’ fees to the shareholders’ meeting for resolution.

The primary task of the Board-created Remuneration Committee is to prepare, for the decision of the Board, proposals pertaining to the President’s salary and other employment terms, and to prepare and propose the main policies and general conditions applying to the setting of salaries and other remuneration and employment terms (including, where applicable, variable salary, pension and severance pay policy) for senior executives and other management in the SAS Group. The Board presents the proposals regarding policies for remuneration and other employment terms for the Group Manage-ment to the AGM for resolution.

Remuneration of other senior executives than the President was decided by the President after consultation with the Remuneration Committee and in line with the policies approved by the shareholders’ meeting.

The Remuneration Committee held three minuted meetings in fiscal year 2019.

DIRECTORS’ FEES IN FISCAL YEAR 2019, TSEK

NameBoard of

DirectorsAudit

Committee

Remu-neration

CommitteeTotal FY19

Total FY18

Carsten Dilling 614 78 692 660Dag Mejdell 409 26 435 415Monica Caneman 311 98 409 390Lars-Johan Jarnheimer 311 48 359 340Sanna Suvan-to-Harsaae 311 311 295Liv Fiksdahl 311 311 295Oscar Stege Unger 311 48 359 340Kay Kratky 202 202Janne Wege-berg 108 108 295Cecilia van der Meulen 311 311 295Endre Røros 311 311 295Christa Cerè 203 203Total 3,713 194 104 4,011 3,620

Fees to deputy employee representatives amounted to TSEK 60 (73).

REMUNERATION AND BENEFITS TO THE PRESIDENT AND OTHER SENIOR EXECUTIVES IN FISCAL YEAR 2019, TSEK

NameFixed base

salary1

Variable remunera-

tion

Other

benefits3 Pension 5

Rickard Gustafson 12,466 – 136 5,123Lars Sandahl Sørensen4 7,268 306 133 1,576Göran Jansson4 4,556 – 445 1,311Other2 18,685 1,625 605 4,347Subtotal 42,975 1,931 1,319 12,357

Provision, unpaid6

Göran Jansson 9,788 – 4 1,430Other 6,394 – 4 963Subtotal 16,182 0 8 2,393Total 59,157 1,931 1,327 14,750

1) Includes holiday compensation.

2) Four members for the full fiscal year. One member for 11 months and two members for one month.

3) Other benefits include company car, travel benefits, health insurance and group life insurance.

4) Remuneration corresponds to ten months for Lars Sandahl Sørensen and 11 months for Göran Jansson.

5) Includes health insurance.

6) Pertains to provisions for salary, pension and benefits during the 12-month notice period as well as the maximum amount of potential severance pay. Severance pay is capped at fixed salary for 12 months after the end of the notice period and is only payable if no new employment has been secured. In the case of new employment, any difference between the former fixed monthly salary and the new fixed monthly salary will be paid.

REMUNERATION AND BENEFITS TO THE PRESIDENT AND OTHER SENIOR EXECUTIVES IN FISCAL YEAR 2018, TSEK

NameFixed base

salary1 Variable

remuneration Other

benefits3 Pension5

Rickard Gustafson 11,346 – 140 4,662Lars Sandahl Sørensen4 2,031 – 53 608Göran Jansson 4,868 – 267 1,408Other2 20,664 – 168 5,332Total 38,909 – 628 12,010

1) Includes holiday compensation.

2) Four members for the full fiscal year and two members for eight months.

3) Other benefits include company car, travel benefits, health insurance and group life insurance.

4) Appointed Deputy President in July 2018. The remuneration pertains to a period of four months.

5) Includes health insurance.

NOTE 4 OTHER OPERATING EXPENSES

FY19 FY18Sales and distribution costs 2,743 2,583Jet fuel 9,672 7,994Government user fees 4,194 4,159Catering costs 1,249 1,263Handling costs 2,832 2,663Technical aircraft maintenance 2,893 2,897Computer and telecommunication costs 1,637 1,554Wet-lease costs 1,472 1,283Other 3,561 3,942Total 30,253 28,338

NOTE 5 DEPRECIATION, AMORTIZATION AND IMPAIRMENT

FY19 FY18Intangible assets 147 136Buildings and fittings 86 67

Aircraft 1,642 1,513Spare engines and spare parts 3 3Workshop and aircraft servicing equipment 21 18Other equipment and vehicles 25 26Total 1,924 1,763

Note 3 continued




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NOTE 6 SHARE OF INCOME AND EQUITY IN AFFILIATED COMPANIES

Share of income in affiliated companies: FY19 FY18Air Greenland A/S1 -15 30Malmö Flygfraktterminal AB 5 5Other 0 0Total -10 35

Total revenue of affiliated companies 1,246 2,081Income after tax in affiliated companies -38 80

1) SAS sold its holding in Air Greenland to the Government of Greenland as of 29 May 2019. The income items pertain to the period from November 2018 until May 2019.

Air Greenland is a Greenlandic company that operates air traffic within, to and from Greenland. Malmö Flygfraktterminal AB operates air cargo services in Malmö, Sweden. These two affiliated companies are closely linked to flight operations and shares in income are recognized in profit or loss.

Share of equity

Equity in affiliated companies:Corporate

registration number Domicile Share of equity %31 Oct

201931 Oct

2018 Air Greenland A/S 30672 Nuuk, Greenland 37.5 – 401Malmö Flygfraktterminal AB 556061-7051 Malmö, Sweden 40.0 10 13Other 4 3Total 14 417

Total assets in affiliated companies 301 1,953Total liabilities in affiliated companies -263 -841Shareholders’ equity in affiliated companies 38 1,112

NOTE 7 INCOME FROM SALE OF AIRCRAFT

FY19 FY18Airbus A320 – 202

Airbus A330 11 –

Boeing 737 8 277Engines 93 –Total 112 479

NOTE 9 NET FINANCIAL ITEMS

Interest income on financial assets not measured at fair value 59 45Interest income on financial assets measured at fair value 113 87Other financial income 0 –Net profit/loss on financial instruments categorized as:Held for trading, interest income – -3Total 172 129

Financial expenses FY19 FY18Interest expense on financial liabilities not measured at fair value -327 -416Interest expense on financial liabilities measured at fair value -157 -143Other financial expenses -54 -54Exchange-rate differences, net -6 4Net profit/loss on financial instruments categorized as: Held for trading, interest expense – 0Other liabilities, interest expense – 0Total -544 -609

Total net financial items -372 -480

NOTE 8 INCOME FROM OTHER SECURITIES HOLDINGS

FY19 FY18Dividends 0 0

Total 0 0




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NOTE 10 TAX

The following components are included in the Group’s tax.

FY19 FY18Current tax -18 -32Deferred tax -155 -423Total tax recognized in net income for the year -173 -455

Tax recognized in other comprehensive income 850 336Total tax recognized in other comprehensive income 850 336

Current tax is calculated based on the tax rate in each country. Deferred tax is calculated at the tax rate expected to apply when the tax is realized.

Tax for the fiscal year can be reconciled against income before tax as follows:

FY19 FY19 (%) FY18 FY18 (%)Income before tax (EBT) 794 2,050Tax according to rate in Sweden -170 -21.4 -451 -22.0Tax effect of non- tax-deductible costs -36 -4.5 -29 -1.4Tax effect of non- taxable income 15 1.9 51 2.5Tax effect of different tax rates 10 1.3 -41 -2.0

Other 8 1.0 15 0.7Tax and effective tax rate for the fiscal year -173 -21.8 -455 -22.2

The tables below show the Group’s most significant deferred tax liabilities and tax assets according to category and how these liabilities and assets changed.

Deferred tax liability in the balance sheet:31 Oct

201931 Oct

2018Cash-flow hedges 73 362Fixed assets 1,365 1,368Pensions 202 285Other temporary differences 172 429Netting of deferred tax assets/liabilities -1,629 -2,085Total 183 359

Deferred tax assets in the balance sheet:31 Oct

201931 Oct

2018Tax loss carryforwards 1,684 1,590Fixed assets 1 4Pensions 275 181Other temporary differences 419 484Netting of deferred tax assets/liabilities -1,629 -2,085Total 750 174

Reconciliation of deferred tax, net:31 Oct

201931 Oct

2018Opening balance -185 -142Change in cash-flow hedging 313 45Change according to statement of income -155 -423Change in defined-benefit pension plans

537 291Exchange-rate differences, etc. 57 44Deferred tax, net, at 31 October 567 -185

On the closing date the Group had unutilized loss carryforwards of about MSEK 8,000 (7,400). Based on these loss carryforwards, the Group recognized a deferred tax asset of MSEK 1,684 (1,590). Deferred tax assets are recognized to the extent that there are factors indicating that taxable profits will be created. The assessment of the respective Group companies’ future profit performance is based on earnings reported in recent years as well as improved profitability prospects. Of recognized loss carryforwards totaling MSEK 1,684, MSEK 538 pertains to operations in Denmark, MSEK 110 to Norway, MSEK 1,013 to Sweden and MSEK 23 to Ireland. With regard to Sweden, further potential deferred tax assets exist attributable to Swedish pensions but, as the assessment is ongoing, the amount cannot be quantified. For loss carryforwards amounting to MSEK 14 (49), no deferred tax asset is recognized due to uncertainty as regards future profit earnings. There are no expiration dates for the loss carryforwards.

Deferred tax liabilities mainly pertain to fixed assets, where fiscal values are lower than accounting values. In the future, a temporary difference per-taining to a fixed asset will change when the carrying amount and fiscal value matches or, alternatively, when the fixed asset is divested and a higher taxable gain arises. Pensions also give rise to deferred tax liabilities, since accounting and fiscal values are treated differently. SAS has chosen to recognize deferred tax net in the balance sheet as there is a legal right to offset at the same time as there is a strong legal connection between the deferred tax assets and deferred tax liabilities.

No provision has been made for deferred tax on temporary differences relating to non-distributed profits in subsidiaries and affiliated companies since these profits will not be distributed within the foreseeable future, or alternatively a distribution can be made without the profits being subject to tax.




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NOTE 11 INTANGIBLE ASSETS

Goodwill IT system Total intangible assets31 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

2018Opening cost 788 741 1,804 1,807 2,592 2,548

Investments – – 90 11 90 11

Sales/disposals -17 – – -17 -17 -17

Sale of companies – – – – – –

Reclassifications – – 1 3 1 3

Exchange-rate differences -28 47 – – -28 47

Closing accumulated cost 743 788 1,895 1,804 2,638 2,592

Opening amortization -94 -90 -999 -877 -1,093 -967

Amortization and impairment for the year – – -147 -136 -147 -136

Sales/disposals 17 – – 17 17 16


Reclassifications – – -1 -3 -1 -3

Exchange-rate differences 2 -4 – – 2 -4

Closing accumulated amortization -75 -94 -1,147 -999 -1,222 -1,094

Opening impairment – – – – – –


Closing impairment – – – – – –

Carrying amount 668 694 748 805 1,416 1,498

The SAS Group is not engaged in activities relating to research and development (R&D).

Goodwill:31 Oct

201931 Oct

2018SAS Scandinavian Airlines Norway 668 694

Total goodwill 668 694

TESTING FOR IMPAIRMENT OF INTANGIBLE ASSETS The value of the Group’s intangible assets has been estimated through comparison with the recoverable amount, which is based on the Group’s cash-generating value in use based on five-years’ cash flow in the Group’s business plan. A growth rate of +1.0% (+1.0) and a cost trend of -0.7% (-0.6) have been adopted for the period beyond the plan period.

The projected cash flows are based on assumptions regarding volume trends, unit revenue, operating margins and discount rates, which have been established by the management based on historical experience and market data. The policies applied in the above assessment are unchanged from the assessment in fiscal year 2018. The discount rate has been estimated based on a weighted capital cost of 9.99% (9.99) before tax, and of 8.7% (8.7) after tax. To support the impairment tests performed on goodwill in the Group, a comprehensive analysis was performed of the sensitivity in the variables used in the model. A weakening of any of the significant assumptions included in the business plans or a weakening of the annual growth rate in revenue and operating margins beyond the plan period, or an increase in the discount rate that, individually, is reasonably probable, shows that a healthy margin still exists between the recoverable amount and carrying amount. Management therefore determined that there was no additional need for impairment of goodwill and other intangible assets at the close of October 2019.




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NOTE 12 TANGIBLE FIXED ASSETS

Buildings and land Aircraft1, 2Spare engines & spare

partsWorkshop & servicing

equipment, aircraft31 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

2018Opening cost 1,183 1,182 19,246 17,729 166 128 360 390Investments 3 3 4,796 5,236 – 38 44 8Capitalized interest – – – – – – – –Sales/disposals -1 -51 -1,762 -4,413 -4 – – -40Sale of companies – – – – – – – –

Reclassifications 157 28 781 708 – – 30 2Exchange-rate differences -1 21 125 -14 – – – –Closing accumulated cost 1,341 1,183 23,186 19,246 162 166 434 360

Opening depreciation -683 -633 -10,479 -9,829 -74 -71 -287 -302Depreciation and impairment for the year -85 -67 -1,642 -1,513 -3 -3 -21 -18Sales/disposals 1 34 545 863 2 – – 34Sale of companies – – – – – – – –Reclassifications – – – – – – – -1Exchange-rate differences -5 -17 -1 – – – – –Closing accumulated depreciation -772 -683 -11,577 -10,479 -75 -74 -308 -287Carrying amount 569 500 11,609 8,767 87 92 126 73

Other equipment & vehicles

Investment in progress

Prepayment relating to tangible fixed assets Total tangible assets

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

Opening cost 448 450 48 16 2,658 1,987 24,109 21,882Investments 40 36 29 60 1,183 1,448 6,095 6,829Capitalized interest – – – – 110 – 110 –Sales/disposals -35 -42 – – – – -1,802 -4,546Sale of companies – – – – – – – –Reclassifications -21 -1 -63 -28 -980 -971 -97 -262Exchange-rate differences 1 5 – – 100 194 225 206Closing accumulated cost 433 448 14 48 3,071 2,658 28,641 24,109

Opening depreciation -346 -355 – – – – -11,869 -11,190Depreciation and impairment for the year -25 -26 – – – – -1,776 -1,627Sales/disposals 35 40 – – – – 583 971Sale of companies – – – – – – – –Reclassifications – – – – – – – -1Exchange-rate differences -4 -5 – – – – -10 -22Closing accumulated depreciation -340 -346 – – – – 13,072 -11,869Carrying amount 93 102 14 48 3,071 2,658 15,569 12,240

1) The insured value of aircraft at 31 October 2019 amounted to MSEK 55,015. This includes the insured value of leased (operating leases) aircraft in the amount of MSEK 33,088.

2) Modifications of aircraft under operating leases are included in planned residual value in the amount of MSEK 190 (126).

The SAS Group’s aircraft holdings can be specified as follows:

31 Oct 2019

31 Oct 2018

Owned 6,860 6,345Finance leased 4,749 2,422Carrying amount 11,609 8,767

At the beginning of fiscal year 2019, there were 13 Boeing 737s and one Airbus A320neo that had been formally acquired through finance leases, with original terms of six to 12 years. During the year, five new Airbus A320neo aircraft were acquired through formal finance leases with terms of 12–13 years. Under all of the finance leases, SAS has purchase options that apply during the terms of the leases.

With regard to finance-leased aircraft, the terms of the leases (particu-larly pertaining to SAS’ purchase options during the contract period and the economic risk SAS has regarding the value of the aircraft) are such that the agreements, from SAS’ point of view, are comparable to a purchase.

FINANCE LEASESThe SAS Group has finance leases for aircraft with remaining terms of up to ten years. In addition, finance leases exist with regard to buildings with remaining terms of around two years, and aircraft vehicles and service equip-ment with remaining terms of up to five years.

Lease payments consist in part of minimum lease payments and in part of contingent rent. In those cases where the lease payments are based on a floating interest rate, they are included in minimum lease payments at the current rate at the start of the agreement. Future changes in the interest rate are included in the contingent rent. Total lease payments amounted to MSEK 501 (316). Contingent rent impacted lease payments for the year by MSEK -8 (-7). At the closing date, there was no leasing of finance-leased assets to third parties. On the closing date, carrying amounts of finance-leased assets amounted to:

AircraftProperty, plant and

equipment31 Oct

201931 Oct

201831 Oct

201931 Oct

2018Cost 7,748 4,967 476 472Less accumulated depreciation -2,999 -2,545 -153 -118Carrying amount of finance-leased assets 4,749 2,422 323 354




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Note 12 continued

Future minimum lease payments and their present value for finance leases applicable on the closing date.

31 Oct 2019

31 Oct 2018

Due date:

Future min-imum lease

payments

Present value of

future min-imum lease

payments

Future min-imum lease

payments

Present value of

future min-imum lease

payments<one year 644 637 454 4461–5 years 2,730 2,629 2,290 2,135>5 years 2,298 2,009 386 299Total 5,672 5,275 3,130 2,880

OPERATING LEASESDuring the year, the SAS Group did not lease out any of its owned aircraft or other assets.

CONTRACTUAL PURCHASE COMMITMENTSThe Group had the following commitments relating to future acquisition of tangible fixed assets. At 31 October 2019, contracted orders amounted to 38 Airbus A320neo aircraft and eight Airbus A350-900s with delivery between 2019 and 2023 amounting to a total future purchase commitment, including spares, of MUSD 2,782. At the closing date, other purchase commitments totaled MSEK 5 (2). SAS has also entered into contracts for 14 A320neo and three A321LR aircraft that will be under operating leases.

NOTE 13 PREPAYMENTS RELATING TO TANGIBLE FIXED ASSETS

31 Oct 2019

31 Oct 2018

Airbus 2,554 2,458

Other 517 200

Total 3,071 2,658

NOTE 14 FINANCIAL FIXED ASSETS

Equity in affiliated companies

Other holdings of securities Net pension funds

Deferred tax and other long-term

receivables1Total financial fixed

assets31 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

2018Opening cost 417 374 73 73 4,025 4,871 2,944 2,731 7,459 8,049Contributions – – 6 – 277 373 1,127 303 1,410 676

Share of income in affiliated companies -9 35 – – – – – – -9 35

Sale of affiliated companies -394 – – – – – – – -394 –Amortization – – – – – – -909 -326 -909 -326Dividend -8 -13 – – – – – – -8 -13Reclassifications – – – – -2,318 -1,192 – -40 -2,318 -1,232

Exchange-rate differences 8 21 – – 20 -27 107 276 135 270Closing accumulated cost 14 417 79 73 2,004 4,025 3,269 2,944 5,366 7,459Opening impairment – – -70 -70 – – – – -70 -70Impairment – – – – – – – – – –Reclassifications – – – – – – – – – –

Closing accumulated impairment – – -70 -70 – – – – -70 -70Carrying amount 14 417 9 3 2,004 4,025 3,269 2,944 5,296 7,389

1) The carrying amount includes blocked bank funds of MSEK 1,789 (1,969) and deferred tax assets of MSEK 750 (174).

NOTE 15 POST-EMPLOYMENT BENEFITS

The table below outlines where the Group’s post-employment benefits are included in the financial statements.

Pension funds in the balance sheet 31 Oct

201931 Oct

2018Present value of funded obligations -19,105 -17,255Fair value of plan assets 21,585 21,855Surplus in funded plans 2,480 4,600Present value of unfunded obligations -476 -575Surplus in defined-benefit pension plans (net pension funds) 2,004 4,025

Recognized in profit or loss pertaining to1 FY19 FY18Defined-benefit pension plans 9 90Defined-contribution pension plans -871 -873

-862 -783Remeasurements of defined-benefit pension plans2 -1,752 -915

1) Expenses recognized in profit or loss include the current service cost, past service cost, net interest expense and gains and losses on settlements.

2) Recognized under other comprehensive income, net after tax.




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Note 15 continued

DEFINED-BENEFIT PENSION PLANSPreviously, most personnel pension plans in Scandinavia were defined-ben-efit plans. In November 2012, new collective agreements were signed with aircraft crew in Scandinavia. Among other things, the new agreements mean that the defined-benefit pension plans were, largely, replaced with defined- contribution pension plans effective as of the first quarter of fiscal year 2014. Defined-contribution pension plans are currently in place for the majority of personnel in Denmark and Norway, and in Sweden for aircraft crew, younger salaried employees and personnel covered by the SAF-LO collective agreement. The majority of the remaining defined-benefit pension plans are secured through insurance companies in the respective countries. In Sweden, pension plans are mainly placed with Alecta and Euroben, in Denmark with Danica and in Norway with DNB. A substantial portion of SAS employees in Sweden continue to be covered by an ITP pension reinsured by Alecta (the Alecta plan). Premiums for defined-benefit retirement pensions are individual and depend, inter alia, on the insured party’s age, salary and previously vested pension rights. Expected fees in fiscal year 2020 for defined-benefit pension plans under the Alecta plan are expected to amount to about MSEK 63. The collective consolidation level comprises the market value of Alecta’s assets as a percentage of insurance undertakings estimated pursuant to Alecta’s actuarial assumptions, which do not comply with IAS 19. Collective consolidation, in the form of a collective consolidation level, is normally permitted to range between 125% and 175%. If Alecta’s collective consolidation level falls below 125% or exceeds 175%, actions must be taken to create conditions enabling the consolidation level to revert to the normal interval. Alecta’s surplus can be allocated to the policy holders or the insured parties if the collective consolidation level exceeds 175%. However, Alecta applies reductions in premiums to avoid an excessive surplus arising. At the end of the fiscal year, Alecta’s surplus in the form of the consolidated col-lective consolidation level was 142% (159). According to a statement by the Swedish Financial Reporting Board, UFR 10, this constitutes a multi-employer defined-benefit plan and enterprises covered by a multi-employer pension plan classified as defined-benefit must account for their proportional share of the plan’s obligations, plan assets and costs in the same way as for any other defined-benefit plan. SAS is provided with information that enables SAS to report its proportional allocated share of the Alecta plan’s commitments, plan assets and costs in accordance with IAS 19 rules regarding defined-benefit pension plans. SAS therefore reports net defined-benefit assets since the future economic benefits are available to SAS in the form of future reductions in premiums, cover for future pension indexing or a cash refund.

IAS 19 – Employee Benefits entails that all deviations in estimates are to be immediately recognized in other comprehensive income. Furthermore, the discount rate on the defined-benefit plan obligation or pension asset is calculated net, and this net interest expense is recognized by SAS as a payroll expense in profit or loss. SAS reports special payroll tax in line with the rules in IAS 19, which means that those actuarial assumptions made in the calculation of defined-benefit pension plans must also include taxes payable on pension benefits.

As per 31 October 2019, the remaining pension plans in Sweden reported a surplus of just over SEK 1.8 billion and, accordingly, special payroll tax was recognized for the surplus. At 31 October 2019, special payroll tax totaled about SEK 0.5 billion (0.8).

Defined-benefit pension plans FY19 FY18Current service cost -84 -75Past service cost and gains and losses on settlements 4 56Interest expense on pension obligations -397 -390Interest income on plan assets 467 468Payroll tax 19 31Total impact recognized in profit and loss for defined-benefit pension plans 9 90

The above earnings effect is recognized in its entirety as payroll expenses.

Changes in the present value of defined-benefit plan obligations

31 Oct 2019

31 Oct 2018

Opening balance, pension obligations 17,830 17,474Current service cost 84 75Settlements -366 -242Interest expense 397 390Reclassification – 17Pensions paid out -841 -867Exchange-rate differences 89 140

17,193 16,987Remeasurements – Gain/loss (-/+) from change in demographic

assumptions -13 31 – Gain/loss (-/+) from change in financial

assumptions 2,238 589 – Experience gains/losses (-/+) 163 223Closing balance, pension obligations, 31 October 19,581 17,830

Change in fair value of plan assets 31 Oct 2019

31 Oct 2018

Opening balance, plan assets 21,855 22,345Settlements -362 -186Interest income 467 468Contributions/premiums paid 136 128Other expenses/revenue 19 31Reclassification -29 31Pensions paid out -709 -712Exchange-rate differences 109 113

21,486 22,218Remeasurements – Special payroll tax -415 -263 – Return on plan assets

(excluding amounts included in interest income) 514 -100

Closing balance, plan assets, 31 October 21,585 21,855

Change in pension funds (net)31 Oct

201931 Oct

2018Opening balance, pension funds (net) 4,025 4,871Total recognized in net income for the year 9 90Reclassification -29 14Remeasurements -1,893 -943Contributions/premiums paid 268 283Special payroll tax -396 -263Exchange-rate differences 20 -27Closing balance, pension funds (net), 31 October 2,004 4,025

Breakdown of the defined-benefit plan obligations and plan assets by country

31 Oct 2019

31 Oct 2018

Sweden Norway Denmark Other Total Sweden Norway Denmark Other TotalPresent value of obligation -17,398 -372 -144 -1,667 -19,581 -15,614 -702 -228 -1,286 -17,830Fair value of plan assets 19,709 – 131 1,745 21,585 19,930 304 206 1,415 21,855

Pension funds (net) 2,311 -372 -13 78 2,004 4,316 -398 -22 129 4,025




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Note 15 continued

Remeasurements — analysis of amounts recognized under other comprehensive income FY19 FY18 – Gain/loss (+/-) from change in demographic

assumptions 13 -31 – Gain/loss (+/-) from change in financial assumptions -2,238 -589 – Experience gains/losses (+/-) -163 -223 – Special payroll tax -415 -263 – Return on plan assets (excluding amounts included in

interest income) 514 -100Total remeasurements -2,289 -1,206

During the year, the discount rate was lowered for all countries. The total impact of changed discount rates entailed a negative impact on other comprehensive income of SEK 2.2 billion. The return on plan assets has been higher than the discount rate, which entailed a positive impact on other comprehensive income of SEK 0.5 billion. Moreover, a negative item of SEK 0.2 billion was recognized under the experience gains/losses item as a result of full index adjustment. ACTUARIAL ASSUMPTIONSThe measurement to be applied under IAS 19 when measuring defined-ben-efit plans is known as the projected unit credit method. This method requires several assumptions (actuarial parameters) for calculating the present value of the defined-benefit obligation. Actuarial assumptions comprise both demo-graphic and financial assumptions. Since assumptions must be neutral and mutually compatible, they should be neither imprudent nor overly conserva-tive. They should reflect the economic relationships between factors such as inflation, rates of salary increase, the return on plan assets and discount rates. This means that they should be realistic, based on known financial relations and reflect SAS’ best assessment of the factors that will determine the ultimate cost of providing post-employment benefits, that is pension costs.

In calculating pension obligations, the current service cost and return on plan assets, locally set parameters are applied in the respective countries on the basis of the local market situation and expected future trends. This means that the parameters are based on market expectations at the end of the re-porting period regarding the time period in which the obligation will be settled.

The discount rate has been determined on the basis of market yields on high-quality corporate bonds (preferably mortgage bonds with a minimum AA rating). The tenor of the bonds reflects the estimated timing and size of pension payments (duration) as well as the currencies these payments are expected to be made in.

Other financial assumptions are based on anticipated developments during the term of the obligation. The assessment of future salary adjustments cor-responds to the assumed rate of inflation in the respective countries and life expectancies are set under DUS14 (DUS14) for Sweden and K2018 (K2018) for Norway.

31 Oct 2019

31 Oct 2018

The key actuarial assumptions Sweden Norway Denmark Other Total Sweden Norway Denmark Other Total

Discount rate 1.45% 1.90% 0.00% 1.96% 1.50% 2.20% 2.85% 0.70% 3.46% 2.30%

Inflation 1.90% 0–1.75% 1.75% 3.50%2) 1.90% 1.90% 1.50%1) 1.75% 3.40%2) 1.89%Salary growth rate 2.00% – 1.75% – 2.00% 2.00% 1.75% 1.75% – 1.99%Pension growth rate 1.90% 0–1.75% 1.75% 3.40%2) 2.00% 1.90% 0.95% 1.75% 3.30%2) 1.96%

1) Pertains solely to unfunded plans.

2) Pertains solely to UK plans.

The average duration of defined-benefit pension plans was as follows: Sweden Norway Denmark OtherFiscal year 2019 15.2 9.4 5.9 17.6Fiscal year 2018 14.6 10.7 6.3 16.8

31 Oct 2019

31 Oct 2018

Plan assets are comprised as follows1: Total % Total %Alecta (Sweden):Equities, of which 38% (44) was invested in Swedish equities 3,667 40 3,808 41Interest-bearing securities 4,584 50 4,645 50Properties 917 10 836 9

9,168 100 9,289 100Euroben (Sweden):Equities, of which 29% (30) was invested in Swedish equities 2,615 26 2,835 29Interest-bearing securities 6,221 62 6,060 62Properties – – 880 9Other 1,238 12 – –

10,074 100 9,775 100Danica (Denmark):Equities 20 15 35 17Interest-bearing securities 94 72 146 70Properties 17 13 27 13

131 100 208 100DnB (Norway):Equities – – 37 12

Interest-bearing securities – – 237 78Properties – – 28 9Other – – 2 1

– – 304 100Other countries:Equities 395 23 359 26Interest-bearing securities 794 45 684 48Other 556 32 372 26

1,745 100 1,415 100

1) The plan assets in the Swedish pension plans exclude special payroll tax, which is not included in the plan assets managed by Alecta and Euroben. Only an insignificant share of the plan assets is invested in SAS shares.




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Note 15 continued

NOTE 16 EXPENDABLE SPARE PARTS AND INVENTORIES

31 Oct 2019

31 Oct 2018

Expendable spare parts, flight equipment 297 331Expendable spare parts, other 23 35Inventories 26 35Total 346 401

Measured at cost 346 401Measured at net realizable value – –Total 346 401

NOTE 17 CURRENT RECEIVABLES

Net impairment of accounts receivable and recovered accounts receivable as well as impairment of other current receivables totaled MSEK 22 (14) and was charged to income.

Age analysis of accounts receivable31 Oct

201931 Oct

2018Accounts receivable not yet due 1,183 1,138Due <31 days 15 24Due 31–90 days 17 39Due 91–180 days 10 9Due >180 days 8 9Total 1,233 1,219

Provision for expected credit losses on accounts receivable

31 Oct 2019

31 Oct 2018

Opening provision 15 9Effect of new accounting policy, IFRS 9 14 –Provision for expected losses 17 11Reversed provisions -3 -1Actual losses -11 -4Closing provision 32 15

NOTE 18 CURRENT RECEIVABLES FROM AFFILIATED COMPANIES

31 Oct 2019

31 Oct 2018

Air Greenland A/S – 1Total 0 1

NOTE 19 PREPAID EXPENSES AND ACCRUED INCOME

31 Oct 2019

31 Oct 2018

Prepaid expenses 446 431Accrued income 400 398Total 846 829

Accrued income is categorized as contractual assets. Further information is provided in Note 29.

NOTE 20 SHORT-TERM INVESTMENTS

31 Oct 2019

31 Oct 2018

Treasury bills 290 287Deposits 344 980Commercial paper 1,511 2,842Tax deduction account in Norway 128 123Total 2,273 4,232

The carrying amount of short-term investments corresponds with the fair value. Fair value is the amount that should have been received for short-term investments outstanding if sold on the closing date. Short-term investments are categorized as financial assets at amortized cost.

All investments have a term of no more than three months. The item de-posits includes receivables from other financial institutes of MSEK 290 (339).

Membership statistics at 31 October 2019 Active employeesTaken early retirement

Deferred pensioners

Pensioners

The Alecta plan 1,972 155 3,098 3,691Euroben 40 – 475 1,012Other plans in Sweden (unfunded) – – – 46DnB – – – 652

Danica 7 – – 11Other 23 – 429 570Total 2,042 155 4,002 5,982

The effect on/sensitivity of the defined-benefit obligation to changes in the key assumptions, MSEK: Sweden Norway Denmark Other TotalDiscount rate, -1% -3,110 -33 -12 -288 -3,443Inflation, +1%1 -3,241 -4 -2 -56 -3,303Salary, +1% -239 – – – -239

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant.

1) Corresponds with sensitivity in terms of pension increases.




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NOTE 21 SHARE CAPITAL

SAS AB has three classes of shares: common shares, subordinated shares and class C shares.

At 31 October 2019, there were 382,582,551 common shares issued with a quotient value of SEK 20.10, representing a registered share capital of SEK 7,689,909,275. In fiscal year 2018, SAS completed a private placement of 52,500,000 common shares.

During fiscal year 2014, an issue of 7,000,000 preference shares was made, each with a quotient value of SEK 20.10. SAS redeemed 4,898,448 preference shares in fiscal year 2018. SAS redeemed the remaining 2,101,552 preference shares in fiscal year 2019.

There are no subordinated shares or class C shares issued or outstanding. Common shares and subordinated shares entitle the holders to one vote each. Each class C share entitles the holder to one-tenth of a vote.

The maximum number of common shares and subordinated shares that may be issued is limited to a number that corresponds with 100% of the company’s share capital. The maximum number of class C shares that may be issued is limited to 5% of the share capital. The common shares provide shareholders the rights stated in the Swedish Companies Act and the Articles of Association.

Subordinated shares provide shareholders the right to participate in and vote at the company’s shareholders’ meetings. Subordinated shares do not entitle shareholders to dividends or participation in bonus issues. If subordinated shares are redeemed or the company is dissolved and its assets distributed, holders of subordinated shares are treated as holders of common shares and receive an equal share in the company’s assets, although not at an amount higher than the quotient value of the subordinated shares index-ad-justed from the first date of registration of the subordinated shares until the date of the payment of the redemption amount or the date of the distribu-tion with an interest-rate factor corresponding to STIBOR 90 days plus two percentage points.

Class C shares do not entitle the holder to dividends. If the company is dissolved, class C shares entitle the holder to an equal share of the company’s assets as the company’s common shares, however not for an amount that exceeds the share’s quotient value. The company’s Board has the right to reduce the share capital by redeeming all class C shares. If such a decision is taken, class C shareholders are obligated to redeem all of their class C shares

for an amount corresponding to the quotient value. The redemption amount is to be paid immediately. Class C shares held as treasury shares by the company will, on demand by the Board, be eligible for conversion to common shares. Thereafter, the conversion is to be registered with the Swedish Companies Registration Office without delay and is effective when it has been registered with the Register of Companies and noted in the Central Securities Depository Register.

To ensure that the ownership circumstances of the company comply with the requirements stipulated in bilateral air traffic agreements or in laws or regulations pertaining to the state of air traffic in the EEA, the Board is entitled, pursuant to the Articles of Association, to make a decision on mandatory redemption of shares held by shareholders outside of Scandina-via without refund to affected shareholders. Should the redemption of such shares not be possible, the Board is entitled (subsequent to resolution by the shareholders’ meeting) to assign warrants with subscription rights for subor-dinated shares to Scandinavian shareholders to dilute the non-Scandinavian shareholding to the requisite level to ensure compliance with the aforemen-tioned regulations.

DIVIDEND POLICYAt 31 October 2019, SAS AB had two share classes listed. SAS’ overriding goal is to create shareholder value. Dividends require a resolution by a shareholders’ meeting, and that SAS AB has distributable earnings. Dividends to holders of common shares can only be paid when value is created through SAS’ ROIC exceeding its WACC. The Group’s financial position, earnings, expected performance, investment requirements and relevant economic conditions should also be taken into account. The dividend should take into account any restrictions applying to the Group’s financial instruments1. The dividend policy endeavors to achieve long-term sustainable dividends.

1) At 31 October 2019, SAS had one financial instrument outstanding that limits dividend rights for holders of SAS common shares. SAS has issued a SEK 2.25 billion unsecured bond, which stipulates that dividends to shareholders may not exceed 50% of net income for the year, but does not apply to dividends on other types of financial products or instruments. No dividend may be distributed by SAS in contravention of the bond terms.

NOTE 22 RESERVES

Translation reserve 2019 2018 Opening translation reserve -51 -198Translation differences for the year -20 147Closing translation reserve, 31 October -71 -51Hedging reserveOpening hedging reserve 1,292 1,472Effect of new accounting policy, IFRS 9 – -20Cash-flow hedges: – Recognized directly in other comprehensive income -1,207 1,237 – Change in statement of income -215 -1,442 – Tax attributed to year’s change

in hedging reserve 313 45Closing hedging reserve, 31 October 183 1,292Total reserves

Opening reserves 1,241 1,254Change in reserves for the year: – Translation reserve -20 147 – Hedging reserve -1,109 -160Closing reserves, 31 October 112 1,241

TRANSLATION RESERVEThe translation reserve includes all exchange-rate differences arising in conjunction with the translation of financial statements from foreign opera-tions that have prepared their financial statements in a currency other than Swedish kronor.

HEDGING RESERVEThe hedging reserve includes the effective part of the cumulative net change in fair value on a cash-flow instrument attributable to hedging transactions that have not yet transpired.


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NOTE 23 LONG-TERM LIABILITIES

Long-term liabilities that fall due more than five years after the closing date.

31 Oct 2019

31 Oct 2018

Subordinated loans 1,240 1,161

Bonds – 360Other loans 2,022 341Total 3,262 1,862

NOTE 24 SUBORDINATED LOANS

A subordinated loan of MCHF 200 was issued during fiscal year 1986. There is no set maturity date for this loan. The interest rate is fixed for ten-year peri-ods and amounts to 0.625% from January 2016. SAS has an exclusive right to cancel this loan every fifth year. When the loan is canceled in connection with an interest-rate reset, SAS is entitled to repay the loan at 100% of its nominal value. If it is canceled five years after an interest-rate reset, the loan must be repaid at 102.5% of the nominal value.

In previous years, SAS repurchased MCHF 73 of the bonds, after which the balance of the loan is MCHF 127 (127), with a countervalue of MSEK 1,240 (1,161).

The bond is listed on the Basel Stock Exchange, Geneva Stock Exchange and Swiss Exchange. On the closing date, its total market value (including cred-it risk) amounted to MCHF 47 (36), with a countervalue of MSEK 461 (331). Fair value has been established entirely by the use of official price quotes.

NOTE 25 BONDS

In May 2001, a MEUR 1,000 European Medium-Term Note program was established. The EMTN program makes it possible for the Group to issue bonds with fixed or floating interest rates in any currency. On the closing date, the SAS Group’s issued bonds amounted to MSEK 3,063 (3,040). A specification of individual bond loans is provided below:

31 Oct 2019

31 Oct 2018

Original amount issued Coupon rate TermDebt outstanding,

currencyCarrying

amount Fair valueCarrying

amount Fair valueMEUR 30.0 3.8%1 2017/22 MEUR 29.8 320 322 309 331MEUR 10.0 3.5%1 2016/21 MEUR 10 107 107 104 109MEUR 35.0 3.5%1 2018/23 MEUR 34.6 373 376 360 394MSEK 2,250.0 5.2% 2017/22 MSEK 2,262.9 2,263 2,143 2,267 2,202Total 3,063 2,948 3,040 3,036Less amortization FY20 and FY19 – – – –Total 3,063 2,948 3,040 3,036

1) Coupon rate on closing date. The loan has a floating interest rate.

The debt outstanding in currency and the carrying amount in MSEK corresponds with amortized cost. The Group has entered into currency derivatives agree-ments for some of these bonds for the purpose of limiting currency risk. The fair value has been established in part by the use of official price quotes, and partly by discounting cash flows at quoted interest rates.


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NOTE 26 OTHER LOANS

31 Oct 2019

31 Oct 2018

Carrying amount Fair value

Carrying amount Fair value

Finance leases 4,920 5,264 2,706 2,832Convertible bond – – 1,559 1,582Other loans 972 994 1,298 1,317Derivatives 39 39 – –Total before amortization 5,931 6,297 5,563 5,731Less amortization FY20 and FY19 -784 -921 -2,272 -2,383Total other loans 5,147 5,376 3,291 3,348

Maturity profile of other loans FY20 FY21 FY22 FY23 FY24 FY24> TotalFinance leases 518 1,214 360 620 186 2,022 4,920Other loans 266 492 192 22 – – 972Derivatives – 39 – – – – 39Total 784 1,745 552 642 186 2,022 5,931

Other loans and finance leases are recognized at amortized cost.In other loans, some borrowing is included within the framework of various revolving credit facilities (see Note 27 for further information). The interest rate of

these loans is readjusted to the current interbank rate based on the currency of the loan plus a margin. The average interest rate on the closing date amounted to 3.91% for finance leases and 3.68% for other loans.

NOTE 27 FINANCIAL RISK MANAGEMENT AND FINANCIAL DERIVATIVES

The SAS Group is exposed to various types of financial risks. All risk man-agement is handled centrally and in accordance with the policies set by the Board. The SAS Group uses derivative instruments as part of its financial risk management to limit its fuel, currency and interest-rate exposure.

FUEL PRICE RISKThe SAS Group is exposed to changes in jet-fuel prices. Exposure is handled by continuously hedging 40–80% of the forecast fuel consumption for the coming 12 months. The main financial derivatives used for hedging jet fuel are options and swaps. On 31 October 2019, the Group signed agreements for derivatives covering approximately 62% of the Group’s forecast jet-fuel requirement for November 2019–October 2020. In November 2018–October 2019, jet-fuel-related costs accounted for 21.2% of the Group’s operating expenses, compared with 18.7% in November 2017–October 2018.

CURRENCY RISKThe SAS Group has currency exposure to both transaction risk and translation risk.

Transaction risk arises when flows in foreign currencies are exposed to cur-rency fluctuations. To manage the transaction risk to which the SAS Group is exposed, the projected commercial currency flows are hedged using currency derivatives. According to the financial policy, the hedge level must be 40–80% of a 12-month rolling liquidity forecast. Future contracted aircraft purchases denominated in USD can be hedged by up to 80% of the contracted amount. Additionally, future aircraft sales can be hedged with currency derivatives and loans in USD in an amount up to 80% of the carrying amounts of the aircraft fleet. On 31 October 2019, the Group signed agreements for derivatives covering approximately 52% of the Group’s forecast commercial currency exposure for November 2019–October 2020.

Translation risk arises during conversion of balance-sheet items in foreign currencies due to currency fluctuations. To limit translation risk, the policy is to keep the net financial debt mainly in the presentation currency of the respective subsidiary.

INTEREST-RATE RISKThe SAS Group is exposed to interest-rate risk when the market value of the net financial debt (interest-bearing assets and liabilities) is affected by movements in the yield curve (market interest rates at different maturities). Group borrowing includes loans at both fixed and floating interest rates. To manage the interest-rate risk, interest-rate derivatives are used to change the fixed-interest term of the underlying gross financial debt. The target of current policy is for the average fixed-interest term of the gross financial debt to correspond to 2 years, with a permitted interval of 1–4 years. In addition, the development of the gross financial debt for the forthcoming 12 months and contracted future aircraft purchases is taken into consideration. At 31 October 2019, the average fixed-interest term was 3.6 (2.7) years.

SENSITIVITY ANALYSIS, REVALUATION EFFECT ON CLOSING DATEThe sensitivity analysis concerning fuel price shows the immediate revalua-tion effect of a 10% parallel shift in the price curve for fuel derivatives.

The sensitivity analysis concerning currency shows the immediate revalua-tion effect on the closing date for cash-flow hedges, accounts receivable and accounts payable of a 10% strengthening or weakening of the Swedish krona against all currencies the SAS Group is exposed to.

The sensitivity analysis for market interest rates shows the immediate revaluation effect on the closing date for interest-rate derivatives and short-term investments with a 1-percentage-point parallel shift in the yield curve. Beyond the revaluation effect, the SAS Group’s net interest for the November 2018–October 2019 period is affected by around MSEK 58 (17) if short-term market rates rise by 1 percentage point. However, if short-term market rates fall by 1 percentage point the corresponding negative effect on net interest is MSEK -58 (-17). The estimate also includes interest-rate derivatives.


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SENSITIVITY ANALYSIS, REVALUATION EFFECT ON CLOSING DATE

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

Market risk Change Currency Earnings impact Earnings impact Equity impact Equity impactFuel price +/- 10% -/- -15/-78 386/-411 405/-217

Currency risk, SEK +/- 10% CNY 3/-3 2/-2 17/-17 23/-23

Currency risk, SEK +/- 10% DKK 7/-7 -4/4 -/- 0/0Currency risk, SEK +/- 10% EUR -1/1 -1/1 -/- -7/7Currency risk, SEK +/- 10% JPY 2/-2 1/-1 38/-38 34/-34Currency risk, SEK +/- 10% NOK 8/-8 14/-14 304/-304 290/-290Currency risk, SEK +/- 10% USD -18/18 -52/52 -450/451 -119/357Currency risk, SEK +/- 10% OTHER -8/8 0/0 43/-43 37/-37

Market interest rates +/- 1% -/- -/- 280/-280 46/-46

FINANCIAL DERIVATIVESDifferent types of currency derivatives, such as currency forward contracts, currency swap contracts and currency options, are used to manage currency exposure. Furthermore, interest-rate exposure is managed by different types of interest-rate derivatives such as Forward Rate Agreements (FRAs), futures, interest-rate swap contracts and currency interest-rate swap contracts.As of 31 October 2019, the fair value of the SAS Group’s outstanding derivative instruments totaled MSEK 660 (476), broken down according to the table below.

31 Oct 2019

Fair value

31 Oct 2018

Outstanding volume Assets Liabilities Net Outstanding volume Fair value, netCurrency derivatives 17,330 196 -153 43 18,176 30Interest-rate derivatives 4,669 – -535 -535 2,960 112Fuel derivatives 7,364 52 -220 -168 6,226 334Total 29,363 248 -908 -660 27,362 476

As of the balance-sheet date, fair value is consistent with carrying amounts. The fair value is the amount received or paid if outstanding financial instruments are sold on the closing date. Derivatives not subject to hedge accounting are

classified as financial instruments at FVTPL. Outstanding volume means the nominal amount of derivative contracts expressed in absolute terms.The total carrying amount for the Group’s derivative financial instruments is presented in the balance-sheet items in the table to the right.

OFFSETTING OF FINANCIAL DERIVATIVESTo reduce counterparty risks for bank receivables related to derivatives, SAS has entered into netting agreements, under ISDA agreements, signed with all of its counterparties.

The information in the following table includes financial assets and liabili-ties that are subject to enforceable master netting arrangements and similar agreements that cover financial instruments.

31 Oct 2019

31 Oct 2018

Other long-term receivables – 80Other receivables 248 566Total derivative assets 248 646Other loans -39 –Current liabilities -869 -170Total derivative liabilities -908 -170Derivative assets/liabilities net at end of the period -660 476Allocation of derivatives according to the following:Cash-flow hedges -666 495Derivatives not designated as hedges for accounting purposes 6 -19Derivative assets/liabilities net at end of the period -660 476


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31 Oct 2019

31 Oct 2018

Financial assets Financial liabilities Total Financial assets Financial liabilities TotalGross amount 248 -908 -660 646 -170 476Amount offset – – – – – –Recognized in the balance sheet 248 -908 -660 646 -170 476Amounts covered by netting agreements -222 260 38 -552 165 -387Net amount after netting agreements 26 -648 -622 94 -5 89

HEDGE-ACCOUNTED DERIVATIVES, CASH-FLOW HEDGEHedging of aircraftThe hedging of future contracted aircraft purchases/sales represents hedging transactions since it is the payment flow in foreign currency during a future purchase/sale that is hedged using the cash-flow method. The loans and the currency forward contracts included in hedging relationships are translated at the relevant closing rate and the change that is calculated as effective is recognized in other comprehensive income. As of 31 October 2019, the accu-mulated currency effect on cash-flow-hedged loans and derivatives relating to future aircraft purchases and sales was recognized after tax in the hedging reserve in equity in the amount of MSEK 812 (998).

Commercial flowsCurrency derivatives are used to manage the transaction risk relating to projected commercial flows. These currency derivatives represent hedging transactions according to the cash-flow method and their accounting policies are matched with those of the underlying liquidity projection. Provided that the effectiveness of the hedges can be demonstrated, the accumulated change in market value of each hedging transaction is recognized in equity until it is recycled to the statement of income as a cost/revenue. As of 31 October 2019, the accumulated currency effect of these cash-flow-hedged currency derivatives was recognized after tax in the hedging reserve in equity in the amount of MSEK 29 (52).

Interest-rate derivativesWhen the SAS Group borrows at floating interest rates and changes its interest-rate exposure by entering into interest-rate swap contracts, whereby floating interest is received and fixed interest is paid, the hedging relationship is classified as a cash-flow hedge. When hedge accounting is applied, the effective portion of the change in value of the hedge instrument is recognized in other comprehensive income. The terms of the interest-rate derivatives used for hedging transactions are matched with those of the individual loans. On the closing date 31 October 2019, the accumulated effect on these cash-flow-hedged interest derivatives was recognized after tax in the hedging reserve in equity in the amount of MSEK -515 (88).

Fuel derivativesFuel derivatives are used to manage the price risk relating to jet fuel. These derivatives represent hedging transactions according to the cash-flow method and their accounting policies are matched with those of the underlying forecast jet-fuel requirement. As of 31 October 2019, the accumulated effect on these cash-flow-hedged fuel derivatives was recognized after tax in the hedging reserve in equity in the amount of MSEK -143 (174).

All together, MSEK 235 (1,682) was recognized before tax in the hedging reserve in equity at 31 October 2019, and is expected to affect the statement of income in the following years as follows:

FY20 FY21 FY22 FY23 FY24 2024/2025> TotalAircraft 215 209 95 94 93 335 1,041Commercial flows 37 – – – – – 37Interest-rate derivatives -43 -67 -67 -66 -66 -351 -660

Fuel derivatives -183 – – – – – -183Deferred tax -6 -31 -6 -6 -6 3 -52

Effect on equity 20 111 22 22 21 -13 183

DERIVATIVES NOT SUBJECT TO HEDGE ACCOUNTINGOther derivatives not subject to hedge accounting are remeasured on an ongoing basis and recognized at fair value through profit or loss. Interest-rate derivatives that cannot be linked to specific borrowing subject to hedge accounting are remeasured on an ongoing basis at their fair value through profit or loss.


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Note 27 continued

CREDIT RISKThe Group’s financial transactions give rise to exposure to credit risk vis-à-vis the financial counterparties. Credit risk or counterparty risk pertains to the risk of loss if a counterparty does not fulfill its contractual obligations. The financial policy prescribes that transactions may only be entered into with counterparties with high credit ratings, defined as category A3/P-1 or better according to Moody’s or alternatively A-/A-1 according to Standard & Poor’s.

Limits are set for each counterparty and are continuously revised. To further reduce counterparty risks, ISDA agreements (netting agreements) are signed with most counterparties. 98% of the credit-related exposure is geographically concentrated in the Nordic countries. The breakdown of the remaining credit exposure is 1% in the rest of Europe and 1% in the rest of the world. The maximum credit exposure for derivative instruments is matched by carrying amounts/fair values, see the above table under the heading Financial derivatives. For cash and cash equivalents, the size of the credit risk is the carrying amount and is distributed as follows:

Carrying amount

Rating (Moody’s)31 Oct

201931 Oct

2018Aaa/P-1 290 287Aa1/P-1 250 651Aa2/P-1 – –Aa3/P-1 3,788 5,401A1/P-1 2,023 2,126A2/P-1 1,862 843A3/P-1 550 448Total 8,763 9,756

Under other long-term receivables, credit risk is allocated between financial institutions, external aircraft lessors, external aircraft operators and various property companies. The same regulations as those defined above for financial counterparties apply for financial institutions. With regard to external aircraft lessors, the majority of claims consist of pledged collateral for leasing fees as well as costs for return requirements. Since the cost of meeting the return requirements largely relates to those costs incurred dependent on the usage of the aircraft, the credit-related exposure is substantially neutralized.

The payments structure in agreements with external aircraft operators is designed so that SAS Group’s receivables in the form of pledged collateral are often or always lower than the current liabilities/expenses of the SAS Group to these external operators.

In relation to the SAS Group’s accounts receivable, the credit risk is spread over a large number of customers including private individuals and companies in various industries. Credit information is required for credit sales with the aim of minimizing the risk of bad debt losses and is based on intra-Group information on payment history supplemented with credit and business information from external sources. The maximum credit risk for the SAS Group accords with the carrying amounts of financial assets according to the categorization table.

LIQUIDITY AND BORROWING RISKLiquidity and borrowing risks refer to the risk that sufficient liquidity is not available when required, and that refinancing of matured loans will be costly or problematic.

The target is for financial preparedness to amount to a minimum of 25% of the SAS Group’s fixed costs. The financial preparedness equals cash and cash equivalents plus total unutilized credit facilities. As of 31 October 2019, finan-cial preparedness amounted to MSEK 11,372 (12,202), with cash and cash equivalents amounting to MSEK 8,473 (9,417) and unutilized credit facilities totaling MSEK 2,899 (2,785) or 38% (42) of the Group’s fixed costs. The SAS Group’s cash and cash equivalents are held in instruments with good liquidity or short maturity with a credit rating of no lower than A3/P-1 according to Moody’s or A-/A-1 according to Standard & Poor’s.

The following tables show remaining contractual terms for SAS’ financial liabilities and assets excluding operations for sale. The figures shown are contractual undiscounted cash flows. The tables show the contracted date when SAS is liable to pay or receive, and includes both interest and nominal amounts. Future interest flows at variable rates are estimated using the cur-rent interest rate on the closing date, which means the amounts may differ.

As of 31 October 2019, the Group’s interest-bearing liabilities amounted to MSEK 11,283 (10,092); 0% (0) of the interest-bearing liabilities have financial key ratio covenants for cash flow, debt/equity and liquidity. The term of the interest-bearing gross debt amounted to approximately 3.3 years (2.9) at year end, excluding the subordinated loan of MCHF 127 which runs without stipulated maturity.

FINANCIAL NET DEBT/RECEIVABLES

MSEKBalance

sheetNet financial

debtOther holdings of securities 9 –

Other long-term receivables 2,519of which interest-

bearing 1,904Accounts receivable 1,233 –Receivables from affiliated companies – –

Other receivables 543of which

interest-bearing 288Short-term investments 2,273 2,273Cash and bank balances 6,490 6,490

Subordinated loans -1,240 -1,240Bonds -3,063 -3,063Other loans -5,147 -5,147Current portion of long-term loans -784 -784

Short-term loans -1,049 -1,049Accounts payable -1,700 –Other liabilities -732 –Financial net debt -328


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Note 27 continued

LIQUIDITY RISK

31 Oct 2019 Up to 3 months 4–12 months 1–5 years Over 5 yearsFinancial liabilitiesSubordinated loans 8 – 31 1,256Bonds 123 6 3,447 –Finance leases 110 278 2,687 2,288Hybrid capital 31 65 2,048 –Other loans 102 148 829 – – Interest-rate derivatives – – 39 –Short-term loans – – – – – Fuel derivatives 70 72 – – – Currency derivatives 91 61 – – – Interest-rate derivatives 266 230 – –Accounts payable 1,700 – – –Other liabilities 302 430 – –Total 2,803 1,290 9,081 3,544

Currency derivatives, gross1 11,866 5,464 – –

Financial assetsOther holdings of securities – – 9 –Other long-term receivables 80 272 1,798 369 – Interest-rate derivatives – – – –Accounts receivable 1,215 18 – –Receivables from affiliated compa-nies – – – –Other receivables – – – – – Fuel derivatives 10 2 – – – Currency derivatives 107 87 – – – Interest-rate derivatives – – – –Short-term investments 2,273 – – –Cash and bank balances 6,490 – – –Total 10,175 379 1,807 369Net 7,372 -911 -7,274 -3,175

31 Oct 2018 Up to 3 months 4–12 months 1–5 years Over 5 yearsFinancial liabilities

Subordinated loans 7 – 29 1,1822

Bonds 123 6 3,202 367Finance leases 131 296 2,083 387Convertible bond – 1,603 – –Other loans 68 125 1,250 –Other long-term liabilities – – 116 –Short-term loans – – – – – Fuel derivatives – – – – – Currency derivatives 78 22 – –Accounts payable 1,675 – – –Other liabilities 55 527 – –Total 2,137 2,579 6,680 1,936

Currency derivatives, gross1 14,804 3,372 – –

Financial assetsOther holdings of securities – – 3 –Other long-term receivables 113 100 2,007 417– Interest-rate derivatives – – 75 5Accounts receivable 1,201 18 – –Receivables from affiliated compa-nies – 1 – –Other receivables 4 18 278 – – Fuel derivatives 176 48 – – – Currency derivatives 104 67 – –– Interest-rate derivatives 7 25 – –Short-term investments 4,232 – – –Cash and bank balances 5,524 – – –Total 11,361 277 2,363 422Net 9,224 -2,302 -4,317 -1,514

1) Currency derivatives have, essentially, corresponding positive cash flows.

2) Subordinated loan with no maturity date.


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Note 27 continued

CONTRACTED CREDIT FACILITIESThe Group has entered into various credit facilities in order to provide additional funding if needed. The schedule below provides details of the credit facilities on 31 October 2019.

31 Oct 2019

31 Oct 2018

Facility Maturity Total facility Utilized facility Unutilized facility Unutilized facility

Credit facility, MEUR 150 2021 1,613 – 1,613 1,561Credit facility, MUSD 137 2020 1,319 33 1,286 1,224Credit facility, MUSD 26 2020 182 182 – –Credit facility, MUSD 34 2021 289 289 – –Credit facility, MUSD 26 2020 53 53 – –Credit facility, MUSD 57 2023 442 442 – –Total 3,899 1,000 2,899 2,785

MEASUREMENT AT FAIR VALUEUnder IFRS 7, disclosures pertaining to financial instruments measured at fair value in the balance sheet are to be provided if the method for establishing fair value utilizes a fair value hierarchy consisting of three levels. The levels reflect the extent to which fair value is based on observable market data or own assumptions. Below is a description of the different levels for determining fair value.

Level 1Financial instruments for which fair value is based on observable (unadjusted) quoted prices in active markets for identical assets and liabilities. A market is considered active if quoted prices from an exchange, bank, pricing service (such as Thomson Reuters) or supervisory body are readily and regularly available and those prices represent actual and regularly occurring arm’s length market transactions.

This category includes mainly standardized derivatives where the quoted price is used in the valuation.

Level 2Financial instruments for which fair value is based on models that utilize observable data for the asset or liability other than the quoted prices included within level 1, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Examples of observable data in level 2 is data that can serve as a basis for assessing prices, such as market interest rates and yield curves.

This category includes mainly certificates and non-standard derivative in-struments (interest-rate, currency and fuel swaps as well as currency and fuel options) not traded in an active market and the fair value is determined using valuation techniques based essentially on observable market data.

Level 3Financial instruments for which fair value is based on valuation models, whereby significant input is based on unobservable data.

The SAS Group currently has no financial assets and liabilities where the valuation is essentially based on unobservable data.

DETERMINATION OF FAIR VALUE — VALUATION TECHNIQUESOther holdings of securities The balance-sheet item “Other holdings of securities” MSEK 9 (3) comprises shareholdings that are not affiliated companies or subsidiaries.

The entire balance-sheet item is measured at cost because its fair value cannot be reliably measured as a justifiable expense. For this reason, the balance-sheet item “Other holdings of securities” is not included in the adjacent table “Financial assets and liabilities measured at fair value.”

Interest-rate derivativesInterest-rate swaps: The fair value of interest-rate swaps is determined by discounting estimated future cash flows. Discounting takes place on the basis of yield curves based in turn on market rates prevailing at the closing date.

Futures: Standardized futures contracts with daily settlement. Fair value is thus determined by daily “mark-to-market” valuation.

Forward Rate Agreement, (FRA): The fair value of OTC FRAs is determined by discounting estimated future cash flows. Discounting takes place on the basis of yield curves based in turn on market rates prevailing at the closing date. Standardized FRAs with cash settlement are measured at fair value using quoted bid and ask rates at year end for an FRA with a corresponding term to maturity.

Currency derivativesCurrency swaps: The fair value of currency swaps is determined by discounting estimated future cash flows in each currency and interest rate. Discounting is based on yield curves on the closing date. Translation of the currency component is based on exchange rates prevailing at the closing date.

Currency options: The fair value of options is determined by application of the Black and Scholes valuation model, a recognized and accepted valuation model in financial markets. The model is based primarily on observable data such as spot price, exercise price, term to maturity, interest rate, volatility, etc.

Fuel derivativesFuel options: The fair value of fuel options is determined by application of the Black and Scholes valuation model. The model is based primarily on observa-ble data such as the fuel swap curve, exercise price, term to maturity, interest rate, volatility, etc.

Fuel swaps: The fair value of fuel swaps is determined according to the fuel swap curve at the closing date.

Short-term investmentsShort-term investments classified as held for trading comprise treasury bills, mortgage bonds and commercial paper with a maximum remaining term to maturity of three months. Fair value is determined by discounting on the basis of yield curves on the closing date.

Cash and bank balancesCash and bank balances comprise cash on hand and demand deposits at banks and corresponding financial institutions. Carrying amounts correspond to fair value.




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Note 27 continued

FAIR VALUES AND CARRYING AMOUNTS OF FINANCIAL ASSETS AND LIABILITIES

31 Oct 2019

31 Oct 2018

Carrying amount Fair value Carrying amount Fair value Financial assetsFinancial assets at fair value, hedge-accounted 225 225 636 636Financial assets at FVTPL 23 23 3,641 3,641Financial assets at amortized cost 12,648 12,648 10,057 10,049Total 12,896 12,896 14,334 14,326Financial liabilitiesFinancial liabilities at fair value, hedge-accounted 891 891 141 141Financial liabilities at FVTPL 17 17 29 29Financial liabilities at amortized cost 12,075 11,540 11,675 10,977Total 12,983 12,448 11,845 11,147

FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

31 Oct 2019

31 Oct 2018

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

ASSETS

Other holdings of securities – – – – 3 –

Other long-term receivables – Interest-rate derivatives – – – – 80 –Other receivables – Fuel derivatives – 52 – – 345 – – Currency derivatives – 196 – – 189 – – Interest-rate derivatives – – – – 32 –Short-term investments – – – 287 2,841 –

Cash and bank balances – – – – 500 –Total – 248 – 287 3,990 –

LIABILITIESOther loans – Interest-rate derivatives – 39 – – – –

Short-term loans – Fuel derivatives – 220 – – 11 – – Currency derivatives – 153 – – 159 – – Interest-rate derivatives – 496 – – – –

Total – 908 – – 170 –


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Note 27 continued

CATEGORIZATION OF FINANCIAL ASSETS AND LIABILITIES

Derivatives at FVTPL Financial assets at amortized cost

Financial liabilities at amortized cost

Derivatives at fair value,

hedge-accounted Total

carrying amountTotal

fair value1

31 Oct 2019 Fair value Amortized cost Amortized cost Fair valueASSETSOther holdings of securities – 9 – – 9 9Other long-term receivables – 2,519 – – 2,519 2,519 – Interest-rate derivatives – – – – 0 0Accounts receivable – 1,233 – – 1,233 1,233Receivables from affiliated companies – – – – 0 0Other receivables – 295 – – 295 295 – Fuel derivatives – – – 52 52 52 – Currency derivatives 23 – – 173 196 196 – Interest-rate derivatives – – – – 0 0Short-term investments – 2,273 – – 2,273 2,273Cash and bank balances – 6,490 – – 6,490 6,490Total 23 12,819 0 225 13,067 13,067

LIABILITIESSubordinated loans – – 1,240 – 1,240 461Bonds – – 3,063 – 3,063 2,947Other loans – – 5,108 – 5,108 5,348 – Interest-rate derivatives – – – 39 39 39Current portion of long-term loans – – 784 – 784 911Short-term loans – – 180 – 180 173 – Fuel derivatives – – – 220 220 220 – Currency derivatives 17 – – 136 153 153

– Interest-rate derivatives – – – 496 496 496Accounts payable – – 1,700 – 1,700 1,700Other liabilities – – 732 – 732 732Total 17 0 12,807 891 13,715 13,180

1) The fair values of subordinated loans have been set entirely by the use of official price quotes. The fair values of other financial assets and liabilities have been set in part by the use of official price quotes, such as discounting of future cash flows at quoted interest rates.


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Note 27 continued

Held for trading

Loans and receivables

Financial assets available-for-sale

Other liabilities

Hedging instruments, derivatives

Total carrying amount

Total fair value1

31 Oct 2018 Fair value Amortized cost Fair value Amortized cost Fair valueASSETSOther holdings of securities – – 3 – – 3 3Other long-term receivables – 2,690 – – – 2,690 2,690 – Interest-rate derivatives – – – – 80 80 80Accounts receivable – 1,219 – – – 1,219 1,210Receivables from affiliated companies – 1 – – – 1 1Other receivables – 300 – – – 300 300 – Fuel derivatives – – – – 345 345 345 – Currency derivatives 10 – – – 179 189 189 – Interest-rate derivatives – – – – 32 32 32Short-term investments 3,128 1,104 – – – 4,232 4,232Cash and bank balances 500 5,024 – – – 5,524 5,524Total 3,638 10,338 3 – 636 14,615 14,606

LIABILITIESSubordinated loans – – – 1,161 – 1,161 337Bonds – – – 3,040 – 3,040 3,036Other loans – – – 3,291 – 3,291 3,348 – Interest-rate derivatives – – – – – – –Current portion of long-term loans – – – 2,272 – 2,272 2,383Short-term loans – – – 158 – 158 151 – Fuel derivatives – – – – 11 11 11 – Currency derivatives 29 – – – 130 159 159 – Interest-rate derivatives – – – – – – –Accounts payable – – – 1,675 – 1,675 1,675Other liabilities – – – 582 – 582 582Total 29 – – 12,179 141 12,349 11,682

1) The fair values of short-term investments and subordinated loans have been set entirely by the use of official price quotes. The fair values of other financial assets and liabilities have been set in part by the use of official price quotes, such as discounting of future cash flows at quoted interest rates.


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NOTE 28 PROVISIONS

Restructuring Loyalty program

Undertakings pertaining to aircraft

under operating leases Other provisions Total31 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

2018Opening balance 473 431 1,908 1,776 2,459 2,524 232 229 5,072 4,960Reclassifications – – -1,908 – – – – – -1,908 –New provisions 230 255 – 855 1,327 1,327 1 1 1,558 2,438Utilized provisions -258 -214 – -723 -829 -1,591 -46 0 -1,133 -2,528Dissolved provisions – – – – – – -172 – -172 –Currency effect 4 1 – – 103 199 1 2 108 202Closing balance 449 473 – 1,908 3,060 2,459 16 232 3,525 5,072

Breakdown in balance sheet:

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

Long-term liabilities 110 228 – 1,908 1,840 1,895 16 13 1,966 4,044Current liabilities 339 245 – – 1,220 564 – 219 1,559 1,028

449 473 – 1,908 3,060 2,459 16 232 3,525 5,072

RESTRUCTURINGThe restructuring provisions are attributable to the cost cutting and efficiency measures initiated in the last few years. These measures entail radical changes and simplification of operations, and will generate a reduction in unit cost.

In addition to restructuring provisions for personnel, the reserve also comprises provisions for property costs.

The long-term portion of the restructuring reserve will be fully utilized within four years.

The provision for restructuring costs includes no reversed unutilized amounts.

LOYALTY PROGRAMThrough membership in the Group’s loyalty program, EuroBonus, customers can earn bonus points by flying with SAS and/or other Star Alliance compa-nies as well as from purchases made from other business partners, such as car rental and credit card companies.

The allocation of loyalty points is viewed as a separate identifiable transac-tion when purchasing airline tickets. The portion of the ticket price allocated to loyalty points is measured at the relative stand-alone price for the points and is not recognized as revenue until the period in which the obligation is met.

The amount for utilized provisions includes a revaluation of the EuroBonus points liability. During recent years, previous estimates of fair value per point

category have been adjusted downwards driven by continued price reduc-tions, changes in EuroBonus rules and withdrawal patterns.

EuroBonus points earned are valid for five years.In accordance with IFRS 15, the EuroBonus liability was reclassified in

November 2018 from provisions to other long-term liabilities as a contractual liability.

UNDERTAKINGS PERTAINING TO AIRCRAFT UNDER OPERATING LEASESSAS makes ongoing provisions for undertakings related to aircraft under operating leases. The undertakings primarily pertain to engines, but also include landing gear, air frames and APUs. The long-term portion pertains primarily to a large number of undertakings with an average duration of around four years. The longest undertaking extends for 12 years.

NOTE 29 CONTRACTUAL ASSETS AND LIABILITIES

The Group has identified contractual assets, which are recognized as accrued income, refer to Note 19. The identified contractual assets pertain mainly to cargo revenue and EuroBonus points sold that have yet to be invoiced to customers.

The Group has identified the following contractual liabilities:

31 Oct 2019

31 Oct 2018

Unearned transportation liability 6,049 5,681Loyalty program 1,926 1,908

The unearned transportation liability and the loyalty program are recognized as contractual liabilities since payments are received from customers before the performance obligation is discharged by the Group. Information about the discharge of performance obligations can be found in Note 1 under the headings “Passenger revenue” and “EuroBonus.”

The unearned transportation liability was MSEK 6,049 at 31 October. Future, unmet, performance obligations are expected to be essentially discharged in the 12 months following 31 October 2019. During the year, MSEK 5,476 of the year’s opening liability was recognized in revenue.

The liability pertaining to the EuroBonus loyalty program was MSEK 1,926 at 31 October. EuroBonus points earned are valid for five years. Since uncertainty exists in terms of when the EuroBonus points will be used, the whole liability is recognized as long-term. The Group’s assessment is that one third of the EuroBonus points will be used and recognized as revenue within 12 months of 31 October 2019 and the remainder at a declining rate over future years. During the year, MSEK 538 of the year’s opening liability was recognized in revenue.

NOTE 30 SHORT-TERM LOANS

31 Oct 2019

31 Oct 2018

Accrued interest 180 158Derivatives 869 170Total 1,049 328

NOTE 31 ACCRUED EXPENSES AND PREPAID INCOME

31 Oct 2019

31 Oct 2018

Vacation pay liability 1,029 1,071Other accrued payroll expenses 248 272Selling costs 121 270Fuel costs 336 317Government user fees 297 271Lease expenses 242 189Handling costs 253 255

Computer and telecommunication costs 188 150Other accrued expenses 482 508Prepaid rents 6 6Total 3,202 3,309




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NOTE 34 LEASING COMMITMENTS

The SAS Group has entered into the following leasing commitments, with specification of the total annual rent for:

FY20 FY21 FY22 FY23 FY24 FY25>Aircraft 3,833 3,569 3,180 2,692 2,351 7,925Properties 586 604 590 567 463 1,240Machinery and equipment 275 236 255 165 100 92

Total 4,694 4,409 4,025 3,424 2,914 9,257

Leases with an annual rental cost in excess of MSEK 0.5 are included. Total lease costs in fiscal year 2019 amounted to MSEK 4,684 (4,687), of which a negative effect of MSEK -54 (7) pertained to changes in contingent rents compared with the original terms of agreements. Contingent rents vary according to different factors such as revenue, the consumer price index and short-term market interest rates.

In fiscal year 2019, assets were subleased to third parties for a total of MSEK 87 (106). The value of future fixed payments for these assets amounted to MSEK 155 (196). At the end of fiscal year 2019, the SAS Group aircraft fleet totaled 158 aircraft, of which 103 were leased.

NOTE 32 PLEDGED ASSETS

31 Oct 2019

31 Oct 2018

Related to liabilities:Aircraft mortgages 3,813 4,197

Related to deposits:Deposits and blocked bank funds 2,714 2,894Total 6,527 7,091

At 31 October 2019, the liability outstanding related to aircraft mortgages was MSEK 1,000 (1,341).

NOTE 33 CONTINGENT LIABILITIES

31 Oct 2019

31 Oct 2018

Guarantees related to:

Emission rights 403 257Other 16 14Total 419 271

The Group is involved in various claims and legal proceedings arising in the ordinary course of business. These claims relate to, but are not limited to, the Group’s business practices, employment matters, and tax matters. Provisions have been recognized for such matters in accordance with probable and quantifiable loss risks. On the basis of information currently available, those issues not requiring any provisions will not have any material adverse effect on the Group’s earnings, nor will they be recognized as contingent liabilities. However, litigation is inherently unpredictable and, even though the provi-sions were assessed as adequate and/or that the Group has valid defenses in these matters, unfavorable results could occur. This could have a material adverse effect on the Group’s earnings in future accounting periods. For more information see the Report by the Board of Directors on page 52.

NOTE 35 ADJUSTMENT FOR OTHER NON-CASH ITEMS, ETC.

FY19 FY18Share of income in affiliated companies 10 -35Dividends from affiliated companies 8 13Capitalized interest on aircraft prepayments -110 –Earnings impact of new accounting policy, IFRS 9 – -9Earnings impact from measuring financial instruments -107 -31Revaluations of pension commitments -9 -90Provisions 201 355Reversed provisions -243 –Other 2 16Total -248 219

NOTE 36 ACQUISITION OF SUBSIDIARIES

Sola Näringseiendom AS was acquired in fiscal year 2019.According to the acquisition analysis performed, the value of the assets

and liabilities acquired was as follows:

FY19 FY18Fixed assets 90 –Current assets – –Cash and cash equivalents 2 –Long-term liabilities -72 –Current liabilities -2 –Purchase price 18 –Cash and cash equivalents in acquired companies -2 –Impact on the Group’s cash and cash equivalents 16 –




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NOTE 37 SALE OF SUBSIDIARIES AND AFFILIATED COMPANIES

NOTE 38 LIABILITIES IN FINANCING ACTIVITIES

Subordinated loans Bonds Other loans

Current portion of long-term loans Short-term loans Total

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

31 Oct 2019

31 Oct 2018

Opening balance 1,161 1,067 3,040 386 3,291 4,088 2,272 2,868 328 166 10,092 8,575

Proceeds from borrowings – – – 2,635 2,292 1,218 – – – – 2,292 3,853

Repayment of borrowings – – – – – – -2,362 -2,921 – – -2,362 -2,921

Exchange-rate differences 79 94 26 32 346 265 90 50 2 – 543 441

Accrued – – -3 -13 -37 -8 – 3 20 99 -20 81

Derivatives – – – – 39 – – – 699 63 738 63

Reclassification to short-term – – – – -784 -2,272 784 2,272 – – 0 0

Opening balance 1,240 1,161 3,063 3,040 5,147 3,291 784 2,272 1,049 328 11,283 10,092

The holding in the affiliated company Air Greenland A/S was divested in fiscal year 2019.

The transaction, whereby the subsidiary Cimber A/S was divested in fiscal year 2017, was completed in fiscal year 2018.

The value of the sold assets and liabilities was as follows:

FY19 FY18Fixed assets 394 –Current assets – –Cash and cash equivalents – –Long-term liabilities – –Current liabilities – –Total 394 –Capital gain/loss 0 –Purchase price 394 –Selling costs – -3Cash and cash equivalents in divested companies – –Impact on the Group’s cash and cash equivalents 394 -3

NOTE 39 CASH AND CASH EQUIVALENTS

31 Oct 2019

31 Oct 2018

Short-term investments 2,273 4,232Cash and bank balances 6,490 5,524Cash and cash equivalents at year end 8,763 9,756

Disclosure of interest paid:During the year, interest received amounted to MSEK 178 (120), of which MSEK 119 (84) pertains to forward premiums for currency derivatives. During the year, interest paid amounted to MSEK 640 (499), of which MSEK 159 (133) refers to forward premiums for currency derivatives.

NOTE 40 AUDITORS’ FEES

The following remuneration was paid to auditing firms for auditing services.

FY19 FY18Auditing services KPMG 5 – PwC – 7Other statutory assignments KPMG 0 – PwC – 0Tax consultancy services KPMG – – PwC – 0Other KPMG 1 – PwC – 1Total 6 8

KPMG Sweden: Fees totaled MSEK 3.5 for auditing services, MSEK 0 for other statutory assignments, MSEK 0 for tax and MSEK 0.9 for other.

NOTE 41 TRANSACTIONS WITH AFFILIATED COMPANIES

Revenue from sales to affiliated companies amounted to MSEK 8 (12). Cost of purchases from affiliated companies was MSEK 52 (42).




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NOTE 42 SEGMENT REPORTING

The Group’s airline operations and other appurtenant operations are reported as one operating segment. The Chief Operating Decision Maker (CODM), which is defined at SAS as the SAS Group Management, has strategic responsibility for allocating resources, primarily in terms of aircraft capacity to the various route sectors, and prepares decision data ahead of strategic Board decisions. Traffic and other revenue is allocated geographically as follows.

GEOGRAPHICAL BREAKDOWN

Domestic Intra-Scandinavian Europe Intercontinental TotalFY19 FY18 FY19 FY18 FY19 FY18 FY19 FY18 FY19 FY18

Passenger revenue 9,473 8,550 3,737 3,519 13,252 13,293 9.017 8,715 35,479 34,077Freight and mail revenue 6 4 6 8 64 64 1,430 1,556 1,506 1,632Charter revenue 0 0 0 0 2,117 1,957 0 0 2,117 1,957Other traffic revenue 784 704 309 275 1,096 1,039 747 683 2,936 2,701

Total traffic revenue 10,263 9,258 4,052 3,802 16,529 16,353 11,194 10,954 42,038 40,367

Denmark Norway Sweden Europe Other countries TotalFY19 FY18 FY19 FY18 FY19 FY18 FY19 FY18 FY19 FY18 FY19 FY18

Other operating revenue 726 697 1,309 1,153 803 865 1,125 982 735 654 4,698 4,351

In fiscal year 2019 and fiscal year 2018, there was no single customer who accounted for more than 10% of the Group’s revenue.The Group’s assets and liabilities are mainly located in Scandinavia. Total fixed assets, including prepayments for tangible fixed assets, which do not comprise financial instruments, deferred tax assets or assets pertaining to post-employment

benefits are allocated geographically as follows. The group, Not allocated, includes prepayments to Airbus and others for future aircraft deliveries amounting to MSEK 3,071 (2,658), refer to Note 13. Aircraft are utilized in a flexible manner across the route network, and are not allocated.

Denmark Norway Sweden Other countries Not allocated Total31 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

201831 Oct

201931 Oct

2018

Fixed assets 486 893 363 299 3,570 3,950 427 362 14,681 11,424 19,527 16,928




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NOTE 43 SUBSIDIARIES IN THE SAS GROUP

31 Oct 2019

31 Oct 2018

Domicile Corp. Reg. No. Total owned shares Holding Carrying amount Carrying amountOwned by SAS AB:SAS Sverige AB Sigtuna 556042-5414 70,500,000 100 1,937 1,937SAS Norge AS Bærum 811176702 47,000,000 100 3028 3,028SAS Danmark A/S Copenhagen 56994912 47,000,000 100 3,970 3,970SAS Individual Holdings AB Stockholm 556063-8255 610,000 100 595 595Linjeflyg AB Sigtuna 556062-8454 2,000,000 100 237 237SAS Cargo Group A/S Tårnby 25736443 200,500 100 0 0SAS Ground Handling Denmark A/S Tårnby 32339026 55,000 100 37 37SAS Ground Handling Norway AS Oslo 912056228 5,000 100 52 52SAS Ground Handling Sweden AB Stockholm 556934-7924 445,000 100 64 64Scandinavian Airlines Ireland Ltd Dublin 601918 2,000,000 100 56 19Gorm Asset Management Ltd Dublin 592913 1 100 0 0Other 0 1

9,977 9,940Owned by SAS Consortium:Flesland Cargo ANS Ullensaker 983693725 – 100 12 1Other 1 1

13 2Owned by SAS Individual Holdings AB:Red 1 A/S Copenhagen 24202941 500 100 1 1Other 0 –

1 1

Owned by SAS Eiendom AS:

Sola Näringseiendom AS Oslo 989607723 100,000 100 18 –

Owned by Gorm Asset Management Ltd:

Gorm Dark Blue Ltd Dublin 593238 1 100 0 0

Gorm Deep Blue Ltd Dublin 593239 1 100 0 0

Gorm Sky Blue Ltd Dublin 593240 1 100 0 0

Gorm Light Blue Ltd Dublin 617208 1 100 0 0

Gorm Warm Red Ltd Dublin 627405 1 100 0 0

Gorm Ocean Blue Ltd Dublin 627406 1 100 0 0

Gorm Engine Management Ltd Dublin 656777 1 100 0 –

NOTE 44 EARNINGS PER SHARE

Earnings per common share are calculated as net income for the period attributable to Parent Company shareholders less preference-share dividends and hybrid bond expenses in relation to 382,582,551 common shares outstanding. The calculation of earnings per share before and after dilution is based on the following earnings and number of common shares. In 2014, a convertible bond was issued, which gave rise to a potential dilution effect, see Note 26. In November 2017, the number of common shares increased 52,500,000 as a result of the private placement. In conjunction with the private placement, the conversion price was changed and the number of potential common shares increased by 793,448 shares. All preference shares were redeemed in December 2018 and the convertible note was repaid in April 2019.

FY19 FY18Net income for the year, attributable to Parent Company shareholders 621 1,595Less preference-share dividend -9 -174Less expenses for the hybrid bond -23 –Net income for the year, attributable to Parent Company shareholders, before dilution 589 1,421

Reversal of interest expense (convertible bond) 19 45Net income for the year, attributable to Parent Company shareholders, after dilution 608 1,466

Weighted average number of common shares during the year, before dilution 382,582,551 382,582,551

Effect of potential common shares outstanding 27,637,310 66,329,543Weighted average number of common shares during the year, after dilution 410,219,861 448,912,094

Earnings per common share before dilution (SEK) 1.54 3.71Earnings per common share after dilution (SEK) 1.48 3.27

NOTE 45 RELATED-PARTY TRANSACTIONS

No significant related-party transactions took place in fiscal year 2019 or in fiscal year 2018 except those between Group companies, where transactions are conducted subject to market terms and conditions.

No significant transactions occurred with related parties aside from the above and the information in Note 3 regarding the remuneration of senior executives.

NOTE 46 SIGNIFICANT EVENTS AFTER THE CLOSING DATE

No significant events took place.




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STATEMENT OF INCOME

MSEK Note FY19 FY18Revenue 58 56Payroll expenses 1 -48 -32Other operating expenses -32 -32

Operating income (EBIT) -22 -8Interest income and similar income items 210 212Interest expenses and similar income items -265 -230Income before tax (EBT) -77 -26Tax 2 21 -14Net income for the year -56 -40

The Parent Company recognizes no items in other comprehensive income for fiscal year 2019 and fiscal year 2018, respectively. Accordingly, net income for the year for the Parent Company corresponds to comprehensive income.

BALANCE SHEET

ASSETS, MSEK Note31 Oct

201931 Oct

2018Fixed assetsFinancial fixed assets

Participations in subsidiaries 3 9,977 9,940Other holdings of securities 4 2 2Deferred tax assets 2 724 701Receivables from Group companies 4,000 4,000Total fixed assets 14,703 14,643Current assetsCurrent receivablesReceivables from Group companies 135 132Prepaid expenses and accrued income 2 2

137 134Cash and bank balances 1 2Total current assets 138 136TOTAL ASSETS 14,841 14,779

SHAREHOLDERS’ EQUITY AND LIABILITIES, MSEK Note

31 Oct 2019

31 Oct 2018

Shareholders’ equityRestricted equityShare capital 7,690 7,732Statutory reserve 447 405Unrestricted equityHybrid bond 1,500 -Retained earnings 1,083 2,232Net income for the year -56 -40Total shareholders’ equity 10,664 10,329Long-term liabilitiesBonds 5 2,245 2,243Deferred tax liability 2 7 10Other provisions 6 –Total long-term liabilities 2,258 2,253Current liabilitiesCurrent portion of long-term loans 0 1,559Liabilities to Group companies 1,772 444Accounts payable 1 3Other liabilities 126 172Accrued expenses and prepaid income 20 19Total current liabilities 1,919 2,197TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 14,841 14,779

Information regarding the Parent Company’s contingent liabilities is available in Note 6.

SAS AB, PARENT COMPANY, INCLUDING NOTES


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CHANGES IN SHAREHOLDERS’ EQUITY

MSEKShare

capitalStatutory

reserveHybrid

bondRetained earnings

Total shareholders’

equityShareholders’ equity, 31 October 2017 6,776 306 4,738 11,820

New issue 1,055 215 1,270

Issuing costs -37 -37Redemption of preference shares -99 99 -2,579 -2,579

Preference share dividend -105 -105Net income for the year -40 -40Shareholders’ equity, 31 October 2018 7,732 405 2,192 10,329Redemption of preference shares -42 42 -1,086 -1,086Hybrid bond 1,500 1,500Hybrid bond interest and expenses -23 -23Net income for the year -56 -56Shareholders’ equity, 31 October 2019 7,690 447 1,500 1,027 10,664

Number of shares: 382,582,551 (382,582,551) common shares with a quotient value of SEK 20.10 (20.10) and 0 (2,101,552) preference shares with a quotient value of SEK 20.10. Each common share entitles the holder to one vote and all common shares own equal rights to participation in the company’s assets and profits. Each preference share entitles the holder to one-tenth of a vote.

CASH-FLOW STATEMENT

MSEKFY19 FY18

OPERATING ACTIVITIESIncome before appropriations and tax -78 -26Loss on liquidation of subsidiary – 0

Cash flow from operations before change in working capital -78 -26Change in:Operating receivables 3 52Operating liabilities 9 -34Cash flow from change in working capital 12 18Cash flow from operating activities -66 -8 INVESTING ACTIVITIESInvestment in subsidiaries -36 –Liquidation of subsidiaries – 1Cash flow from investing activities -36 1

FINANCING ACTIVITIESHybrid bond 1,474 –New issue – 1,223Redemption of preference shares -1,112 -2,579Dividend on preference shares -26 -228Group contributions received – 18Bond redemption – -1,500New bond – 2,269Change in short-term investments – 263Change in interest-bearing receivables – –Change in interest-bearing liabilities -235 541Cash flow from financing activities 101 7

Cash flow for the year -1 0Cash and cash equivalents at beginning of the year 2 2Cash and cash equivalents at year end 1 2

Disclosure of interest paid:During the year, interest received amounted to MSEK 210 (212). During the year, interest paid amounted to MSEK 278 (137).


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NOTE 1 NO. OF EMPLOYEES, SALARIES, OTHER REMU-NERATION AND SOCIAL SECURITY EXPENSES

The average number of employees amounted to 3 (4), all of whom were employed in Sweden.

FY19 FY18 Men Women Men Women

Sweden 2 1 2 2

Total men and women 3 4

For salaries, remuneration and social security expenses as well as remuner-ation and benefits paid to Board members, the President and other senior executives of SAS AB, see SAS Group Note 3.

NOTE 2 TAX

FY19 FY18 Current tax – –Deferred tax 21 -14 Total tax 21 -14

Reconciliation of deferred tax, netOpening balance 691 695Tax effect on items in equity 5 10Change according to statement of income 21 -14Deferred tax, net, at 31 October 717 691

NOTE 3 PARTICIPATIONS IN SUBSIDIARIES

See SAS Group Note 43 — Subsidiaries in the SAS Group.

NOTE 4 OTHER HOLDINGS OF SECURITIES

31 Oct 2019

31 Oct 2018

Incorporate Cell Company 2 2Total 2 2

NOTE 5 BOND

31 Oct 2019

31 Oct 2018

Issued MSEK 2,250 2,245 2,243Total 2,245 2,243

A bond of MSEK 1,500 with maturity in 2022 was issued in November 2017 and carries a coupon rate of 5.375%. In June 2018, the new bond issue was increased through issuing an additional tranche of MSEK 750.

The bond is classified under other liabilities, with recognition at amortized cost.

NOTE 6 CONTINGENT LIABILITIES

SAS AB has provided an irrevocable undertaking to assume liability, as for its own debt, for the SAS Consortium’s contractual interest-bearing obligations, leasing commitments and other financial obligations with some reservations in terms of subordinations and with the proviso that the obligations were entered into from the date the irrevocable undertaking entered force on 31 December 2003 until it terminates on 30 September 2020.

SAS AB has also provided undertakings for each of the subsidiaries: Gorm Asset Management Ltd; Gorm Dark Blue Ltd; Gorm Deep Blue Ltd; Gorm Light Blue Ltd; Gorm Ocean Blue Ltd; Gorm Sky Blue Ltd; Gorm Engine Management Ltd and Gorm Warm Red Ltd, which include completion guarantees for all contractual obligations with external lessors of aircraft. All the subsidiaries are based in Ireland and act as the counterparties in certain agreements with external lessors of aircraft.

NOTE 7 AUDITORS’ FEES

FY19 FY18 Auditing services KPMG 5 – PwC – 6

Other statutory assignments KPMG 0 – PwC – 0Tax consultancy services KPMG – – PwC – 0Other KPMG 1 – PwC – 0Total 6 6

Auditors’ fees are invoiced to the Parent Company which, in turn, invoices the Group subsidiaries for their respective costs.

KPMG Sweden: Fees totaled MSEK 3.5 for auditing services, MSEK 0 for other statutory assignments, MSEK 0 for tax and MSEK 0.9 for other.


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The Board of Directors and the President hereby give their assurance that this Annual Report has been pre-pared pursuant to the Swedish Annual Accounts Act and RFR 2, Accounting for Legal Entities, and provides a true and fair view of the company’s financial posi-tion and earnings, and that the Report by the Board of Directors provides a true and fair overview of the com-pany’s operations, financial position and earnings, and describes the significant risks and uncertainty factors to which the company is exposed.

The Board of Directors and President hereby give their assurance that the consolidated financial statements have been prepared pursuant to the International Financial Reporting Standards (IFRS) as adopted by the EU, and provide a true and fair view of the Group’s financial position and earnings, and that the Report by the Board of Directors for the Group provides a true and fair overview of the performance of the Group’s operations, financial position and earnings, and describes the significant risks and uncertainty factors to which the companies in the Group are exposed.

Stockholm, 29 January 2020

Carsten DillingBoard Chairman

Dag MejdellVice Chairman

Monica CanemanBoard member

Lars-Johan JarnheimerBoard member

Oscar Stege UngerBoard member

Liv FiksdahlBoard member

Sanna Suvanto-HarsaaeBoard member

Kay KratkyBoard member

Endre RørosBoard member

Cecilia van der MeulenBoard member

Christa CerèBoard member

Rickard GustafsonPresident and CEO

Our auditors’ report was submitted on 29 January 2020

KPMG AB

Tomas GerhardssonAuthorized Public Accountant

As stated above, the annual accounts and the consolidated accounts were approved for issuance by the Board of Directors on 29 January 2020. The consolidated statement of income and balance sheet and the Parent Company’s statement of income and

balance sheet will be subject to adoption by the Annual General Shareholders’ Meeting on 12 March 2020.

SIGNATURESFinancial Statements



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To the general meeting of the shareholders of SAS AB, corp. id 556606-8499

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS

OpinionsWe have audited the annual accounts and consol-idated accounts of SAS AB for the financial year 2018-11-01—2019-10-31, except for the corporate governance statement on pages 63-76. The annual accounts and consolidated accounts of the company are included on pages 43-122 in this document.

In our opinion, the annual accounts have been pre-pared in accordance with the Annual Accounts Act, and present fairly, in all material respects, the financial position of the parent company as of October 31, 2019 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of October 31, 2019 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 63-76. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the Parent Company and the Group.

Our opinions in this report on the the annual accounts and consolidated accounts are consistent with the con-tent of the additional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation (537/2014) Article 11.

Basis for OpinionsWe conducted our audit in accordance with International Standards on Auditing (ISA) and gen-erally accepted auditing standards in Sweden. Our responsi bilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsi bilities in accordance with these requirements.This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies within the EU.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Other MatterThe audit of the annual accounts for the financial year 2017-11-01—2018-10-31 was performed by another auditor who submitted an auditor´s report dated January 28, 2019, with unmodified opinions in the Report on the annual accounts and consolidated accounts.

AUDITORS’ REPORTFinancial Statements



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Description of key audit matter Response in the audit

The Group accounts for passenger revenue of MSEK 35,479 for the financial year 2018/19, and liabilities for unearned transportation revenue of MSEK 6,049 and for the customer loyalty program of MSEK 1,926 as at October 31, 2019.

Passenger revenue is accounted for as a liability from the point of sale until commencement of the air transport for the passenger. Upon departure of the air transport, revenue is recognized in the income statement. Additionally, tickets that subsequent to the scheduled flight date, have been assessed to expire before utilization by a passenger are recorded as revenue. Based on historical outcomes and seasonality, a regular assessment is performed to estimate the value of tickets, where the scheduled flight date has passed, that will expire before utilization. The recognition of revenue relating to the expired tickets estimate results in a corresponding reduction of the unearned trans-portation revenue liability.

Furthermore, the Group has a customer loyalty program, EuroBonus. Points earned by program members are recorded as a liability on the balance sheet until they are redeemed or have expired. The value of the liability is derived by the number of points held by members and the estimated fair value per point adjusted for the estimated future expiration rates. Estimations for the fair value per point and point expiry are monitored on a regular basis. Points that are estimated to expire prior to redemption are recognized as revenue, with a corresponding reduction to the customer loyalty program liability.

The recognition of revenue and movements in contract liabilities associated with expired tickets and the customer loyalty program is based on a number of inherently complex assumptions. Volatility or inaccuracies in determining these assumptions may result in significant impacts on the Group’s results and financial position.

In our audit, we have gained an understanding and assessed risks and controls of the accounting processes relating to passenger revenue, unearned transportation revenue, and the customer loyalty program. We have evaluated the design and implementation of internal controls relating with associated estimates and the interfacing of certain systems to derive the data used in these estimates.

We have assessed the reasonableness of the models utilized by the Group to develop these estimates and their interaction with the associated accounts. This assessment commenced with the validation of the data utilized as a basis for each estimate and the accuracy of calculations contained within.

For the basis estimation of the fair value per customer loyalty program point before estimated expiry is applied, we examined the key inputs used to develop the value by comparing historical usage patterns and observable market values such as comparable airfares. For future ticket expiration and customer loyalty program point expiration, we assessed the Group’s forecasting accuracy by comparing previous estimates to actual outcomes. We evaluated the breakage assumptions against historical trends, and future expectations. We have also reconciled the estimate models to the associated income statement and balance sheet accounts.

We have also assessed the disclosures relating to passenger revenue and related contract liabilities included in the annual accounts and the consoli-dated accounts.

Key Audit Matters Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.

Accounting of passenger revenue including contract liabilities for tickets sold but not yet recognized as revenue and the customer loyalty programSee notes 2 and 29 and the accounting principles on pages 88-89 in the annual accounts and consolidated accounts for detailed information and description of the matter.




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Other Information than the annual accounts and consolidated accounts This document also contains other information than the annual accounts and consolidated accounts and is found on pages 2-42 and 151-159. The Board of Directors and the Chief Executive Officer are responsi-ble for this other information.

Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure, we also take into account our knowledge otherwise obtained in the audit and assess whether the informa-tion otherwise appears to be materially misstated.

If we, based on the work performed concerning this information, conclude that there is a material mis-statement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Chief Executive OfficerThe Board of Directors and the Chief Executive Officer are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the

Description of key audit matter Response in the audit

The carrying value of owned and finance lease aircraft in the Group amounted to MSEK 11,609 as at October 31, 2019, and the provision for major mainte-nance costs of operating lease aircraft and engines amounted to MSEK 3,060. The Group’s owned and finance lease aircraft are divided into various compo-nents with estimated useful lives of 2-20 years and with an estimated end of life residual value of 10%. Engines are depreciated based on utilization and major maintenance costs for the various components are capitalized and depreciated until the next assessed obligatory major maintenance occasion. An assessment is made of the carrying value of the owned and finance lease aircraft on a quarterly basis. This assessment takes into account the market value and value in use of each class of aircraft, amongst other variables including changes to aircraft routes and foreign exchange implications.

To account for major maintenance costs of operating lease aircraft and engines, provisions are made on a continuous basis which are utilized when the major maintenance is carried out or the aircraft is returned.

The Group’s estimations of useful lives, residual values and obligatory major maintenance costs for engines and other aircraft components are complex in nature. The quarterly aircraft valuation assessments are based on a number of assumptions and judgments which are inherently complex and vary between classes of aircraft. Changes in the basis for these assumptions and estimates may have a significant impact on the Group’s results and financial position.

In our audit, we have evaluated the design and implementation of internal controls associated with the determination and calculation of component depreciation and maintenance provisions. This includes the development and monitoring of flight hours and flight cycles for engine components. We have also evaluated the design and implementation of the Group’s aircraft impairment assessment controls.

We have assessed the reasonableness of assumptions made for useful lives, components and residual values regarding owned and finance lease aircraft and reconciled these assumptions against carrying values of aircraft components and associated depreciation recorded in the income statement. Furthermore, we have evaluated the Group’s impairment indicator assessments for each class of aircraft to ensure that they have been prepared in accordance with the Group’s accounting policy and their resonableness, by reconciling against external market data and adopted forecasting for value in use.

To assess the completeness and accuracy of provisions for major maintenance for operating lease aircraft, we have evaluated the Group’s calculations and associated accounting entries on a sample basis through inspection of lease agreements, market values and flight cycles and flight hours.

We have also assessed the disclosures relating to owned and finance leased aircraft and provisions for major maintenance costs of operating leased aircraft included in the annual accounts and the consolidated accounts.

Carrying values of owned and finance lease aircraft and provisions for major maintenance costs of operating leased aircraftSee notes 12 and 28 and the accounting principles on pages 87-88 in the annual accounts and consolidated accounts for detailed information and description of the matter.




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EU. The Board of Directors and the Chief Executive Officer are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, the Board of Directors and the Chief Executive Officer are responsible for the assessment of the company’s and the Group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Chief Executive Officer intend to liquidate the company, to cease operations, or have no realistic alternative but to do so.

The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in gen-eral, among other things oversee the Group’s financial reporting process. Auditor’s responsibilityOur objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstate-ment, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in

the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scep-ticism throughout the audit. We also:• Identify and assess the risks of material misstate-

ment of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of the Group’s internal control relevant to our audit in order to design audit procedures that are appropriate in the circum-stances, but not for the purpose of expressing an opinion on the effectiveness of the company’s inter-nal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting esti-mates and related disclosures made by the Board of Directors and the Chief Executive Officer.

• Conclude on the appropriateness of the Board of Directors’ and the Chief Executive Officer’s, use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evi-dence obtained, as to whether any material uncer-tainty exists related to events or conditions that

may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related dis-closures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or condi-tions may cause a company and a group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified.

We must also provide the Board of Directors with a statement that we have complied with relevant eth-ical requirements regarding independence, and to communicate with them all relationships and other




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matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, including the most impor-tant assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes disclosure about the matter.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSOpinionsIn addition to our audit of the annual accounts and con-solidated accounts, we have also audited the adminis-tration of the Board of Directors and the Chief Executive Officer of SAS AB for the financial year 2018-11-01—2019-10-31 and the proposed appropriations of the Group’s profit or loss.

We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Chief Executive Officer be discharged from liability for the financial year.

Basis for OpinionsWe conducted the audit in accordance with generally accepted auditing standards in Sweden. Our respon-sibilities under those standards are further described

in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical respon-sibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Chief Executive Officer The Board of Directors is responsible for the proposal for appropriations of the Group’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the Group’s type of opera-tions, size and risks place on the size of the Parent Company’s and the group’s equity, consolidation requirements, liquidity and position in general.

The Board of Directors is responsible for the Group’s organization and the administration of the Group’s affairs. This includes among other things continu-ous assessment of the Group’s financial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the Group’s financial affairs otherwise are controlled in a reassuring manner.

The Chief Executive Officer shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the Group’s

accounting in accordance with law and handle the man-agement of assets in a reassuring manner. Auditor’s responsibilityOur objective concerning the audit of the administra-tion, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Chief Executive Officer in any material respect:• has undertaken any action or been guilty of any

omission which can give rise to liability to the Group, or

• in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the Group’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accord-ance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accord-ance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the Group, or that the proposed appropriations of the Group’s profit or loss are not in accordance with the Companies Act.

As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional




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scepticism throughout the audit. The examination of the administration and the proposed appropriations of the Group’s profit or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relation-ships that are material for the operations and where deviations and violations would have particular impor-tance for the Group’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the Group’s profit or loss we exam-ined whether the proposal is in accordance with the Companies Act.

The auditor’s examination of the corporate governance statementThe Board of Directors is responsible for that the cor-porate governance statement on pages 63-76 has been prepared in accordance with the Annual Accounts Act.

Our examination of the corporate governance state-ment is conducted in accordance with FAR´s auditing standard RevU 16 The auditor´s examination of the corporate governance statement. This means that our

examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has pro-vided us with sufficient basis for our opinions.

A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points 2-6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts Act.

KPMG AB, P.O. Box 382, SE-101 27, Stockholm, was appointed auditor of SAS AB by the general meet-ing of the shareholders on March 13, 2019. KPMG AB or auditors operating at KPMG AB have been the company’s auditor since 2019.

Stockholm January 29, 2020 KPMG AB

Tomas GerhardssonAuthorized Public Accountant




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SUSTAINABILITY NOTESSUSTAINABILITY GOVERNANCE | ENVIRONMENT | EMPLOYEES

RESPONSIBLE BUSINESS | ABOUT THIS REPORTGRI CONTENT INDEX | ASSURANCE REPORT

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SUSTAINABILITY GOVERNANCESAS MANAGEMENT SYSTEMSAS has integrated sustainability into its management system. The system encompasses all activities at SAS and is based on airline operational standards and our own and shared environmental and sustainability poli-cies, the Code of Conduct, the UN Global Compact, the UN Sustainability Development Goals, Lean and ISO 14001. The system provides guidelines for the ongoing cycle of planning, implementation and evaluation, as well as the improvement of processes and activities to meet operational and sustainability targets. SAS also has control mechanisms with allocated follow-up sys-tems and resources in order to ensure compliance with applicable international and national legislation.

ENVIRONMENT & CSR STAFF UNITAs a strategic support and driving force, SAS has a cen-tral department for sustainability topics (Environment and CSR) that reports to senior management. The department’s tasks include developing, driving and maintaining the SAS sustainability agenda and sup-porting the continuous work of sustainability-related matters, both internally and externally. The department is also responsible for maintaining and developing fuel-efficiencyactivities,compliancewithEU-ETSandCORSIA,ISO14001certification,coordinatingbiofuelactivities,electrificationofaircraftandsupportingwithother sustainability topics.

CODE OF CONDUCTThe Board of Directors has issued the Code of Conduct to summarize and clarify SAS stated priorities, prom-ises, policies and other regulations. The Code applies to all employees regardless of their role or type of employment. To highlight the Code’s importance, an extensive training program supports the implementa-tion of the Code and all personnel regularly participate. The Code is available at www.sasgroup.net. There are also clear rules and structures for reporting and addressing suspected violations through the manage-ment system or the SAS whistle-blower function. The Code’s whistle-blower function was used on eight occa-sions in FY 2019. All cases have, after investigation and in some cases further actions, been closed. RISK MANAGEMENTSAS has a precautionary risk management approach and the work is focused on minimizing sustainability -related risks and capturing potential opportunities. The risks and opportunities are assessed and strategically dealt with within the management system and are inte-grated into our comprehensive risk management. Risk control measures are crucial to managing risks.

SAS works to manage risks and certain opportunities that offer tangible business potential. One example is our work with mitigating environmental impacts

The UN Sustainable Development Goals (SDGs) are a collection of 17 goals set by the United Nations General Assembly in 2015 to reach a broad range of targets by 2030. We support all of the 17 SDGs but the most material are 5 [Gender equality], 8 [Decent work and economic growth], 12 [Responsible consumption and production] and 13 [Climate action]. Please see page 19.

throughourcertifiedenvironmentalmanagementsystem. The system provides us with operational control and the capacity to quickly deal with changing business environment requirements.

A summary of SAS risks is disclosed on page 53 and the most material sustainability related risks are 2. Employee risks and 4. Sustainability risks.

SAS also annually discloses its risks and opportunities related to climate change to CDP. The most material risks and opportunities are related to our possibilities to conduct aircraft operations in a changing climate and customer perception regarding SAS as a more sustainablealternativeforfastandefficienttraveloverlonger distances. The detailed disclosure is available on www.cdp.net.

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Sustainability notes

Sustainability governance

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ENVIRONMENT

SDG 13 – CLIMATE ACTION

Goal 13 calls for urgent action to combat climate change. SAS works proactively to reduce its greenhouse gas emissions by focusing on reducing emissions from its aircraft operations.

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ENVIRONMENTAL MANAGEMENTOur approach to environmental responsibility involves complying with all relevant legislation and minimizing our absolute as well as relative greenhouse gas emis-sions and other environmental impacts.

Both the SAS Environmental Policy and the SAS Sustainability Policy are approved by Group Management and are applicable to all SAS employees, products and services. The policies, together with their goals and strategies, are reviewed annually at the ISO 14001 management review by Group Management. Activities are followed up within the management system and reported weekly, monthly, quarterly or annuallyaccordingtospecificneeds.

The SAS environmental management system has beencertifiedaccordingtoISO14001throughoutthecompany since 2010. The environmental management system is continuously evaluated in order to ensure the effectiveness and suitability of the system itself and our ongoing activities. The ISO 14001 standard is a key part of how we work with our environmental goals.

OUR ENVIRONMENTAL GOALSTo lower our greenhouse gas emissions and to push our environ mental work we have set comprehensive and ambitious short and long-term environmental goals.



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2030 goals• 25% lower CO2 emissions compared with 2005

(absolute emissions)• 17% biofuel used - equivalent to the SAS

domestic production• 50% noise reduction compared with 2010• 100% sustainable materials in the SAS

customer offering• 100% recycling where possible 2050 goals• >50% lower CO2 emissions compared with

2005 (absolute emissions and more ambitious than IATA ambition)

GREENHOUSE GAS EMISSIONSCommitted to industry objectivesWe intend to be part of a long-term sustainable society and support the International Air Transport Association (IATA)ambitionthatitwillbepossibletoflycom-mercially without material climate impact by 2050. The IATA and the airline industry have agreed on the following joint targets:• Improvedfuelefficiencybyanaverageof1.5%

annually from 2009 to 2020• Carbon-neutral growth from 2020• 50% reduction in greenhouse CO2 emissions by

2050, compared with 2005 levelsSource: www.enviro.aero

Carbon-neutral growth is going to be achieved through CORSIA. Please read more about CORSIA on page 136. SAS is fully committed to reaching the IATA tar-getsandourfuelefficiencyhasimprovedbyapproxi-mately 2% each year since 2010. We will realize these targets through a combination of new technology, biofuels,newenergysources,moreefficientairtrafficmanagement and coordinated action to improve the infrastructure and the conditions under which air trans-port operates. See pages 132–135 for more details on how we are actively working to reduce our emissions.


UnitFY

2019FY

2018Base year

2010

Flight Operations

CO2 total 1,000 tonnes 4,210 4,313 3,511

asofdomesticflights 1,000 tonnes 734 743

asofflightsto/fromEU/ETS 1,000 tonnes 1,767 1,834

asofflightsto/fromoutsideEU/ETS 1,000 tonnes 1,709 1,736

CO2 passenger share 1,000 tonnes 3,814 3,886 3,244

NOx 1,000 tonnes 17.7 18.4 14.3

HC 1,000 tonnes 0.32 0.37 -

Passenger kilometers million 40,247 40,867 29,572

Tonne kilometer million 4,770 4,907 3,480

Departures 1,000 298 302 279

CO2/passengerkilometer gram 95 95 109.7

CO2/availableseatkilometer gram 62 63 74

CO2/tonnekilometer gram 882.5 879.1 1,008.9

Aircraft Noise – takeoff 85 db area in km2 per dep.

2.17 2.17 2.40

Ground Handling

CO2 Vehicle Petrol1 tonnes 55 51

CO2 Vehicle Diesel1 tonnes 4,612 4,662

Maintenance Productions

CO2 Vehicle Petrol 1 tonnes 36 37

CO2 Vehicle Diesel1 tonnes 164 182

SAS Cargo Group

CO2cargoshareflown 1,000 tonnes 397 427

Cargotonnekilometerflown million 746 820

CO2/cargotonnekilometerflown gram 532 521

CO2/cargotonnekilometertrucked gram 135 1291) SAS only report on main bases ARN, CPH and OSL.

GREENHOUSE GAS EMISSIONS, SCOPE 1

WHAT ARE OUR RELATIVE AND ABSOLUTE EMISSIONS?

Absolute emissions refer to our total quantity of emissions (often measured in tonnes CO2).

Relative emissions refer to emissions per production unit (e.g. gram CO2 per tonne kilometer, gram CO2 per passenger kilometer, gram CO2 per cargo tonne kilometer or gram CO2 per available seat kilometer ).

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THE GLOBAL AIRLINE INDUSTRY’S 2050 ENVIRONMENTAL GOALS60

65

70

75

80

1990 2005 2020 2035 2050

GOAL -50%

Emissionswithoutefficiencyenhancements Today’s technology plus growth Airline industry’s goal

Our greenhouse gas emissionsIn FY 2019, our absolute CO2 emissions from air-craft operations decreased 2.4% compared with the previous year. Our CO2 emissions per passenger kilometer remained at 95 grams (95), a 14% reduction since 2010.

During the year we introduced seven A320neo and one A330Eaircraft.Ourfleetnowincludeslargerandmorefuel-efficientaircraftwhichallowsustocarrymorepassengers with lower emissions. Since 2005, our emissions have decreased 5.3% while our production measured in tonne kilometer has increased 18%.

SAS AIRCRAFT OPERATIONS TOTAL CO2 EMISSIONS AND TONNE KM

Total CO2 emissions (000s tonnes) Tonne kilometers (millions)

SAS AIRCRAFT OPERATIONS CO2 GRAM/PASSENGER KILOMETER

Non-CO2 emissionsWhen it comes to greenhouse gas emissions SAS has chosen to disclose the different emissions separately in this report and the emission calculator available on SAS' webpages. Most emission calculators on the market calculate an estimated CO2 equivalent (CO2 e) based on different multipliers to include non-CO2

emissions. SAS has chosen not to do so, because there is no consensus on how to calculate NOx, particles and water vapor emissions to CO2e among scientists and experts. SAS supports multiple initiatives aiming at developing the calculation methodology.

3,000

3,400

3,800

4,200

4,600

5,000

2010 2011 Jan-Oct2012

FY13 FY14 FY15 FY16 FY17 FY18 FY19

90

95

100

105

110

115

2010 2011 Jan-Oct2012

FY13 FY14 FY15 FY16 FY17 FY18 FY19


1,000s tonnes CO2

% of total aircraft operation CO2

Denmark

Domesticflights 33 0.8

FlightstoEU/EEA 378 9.0

FlighttooutsideEU/EEA 608 14.4

Norway




Sweden




Finland

Domesticflights 0 0


FlighttooutsideEU/EEA 0 0

EU/EEA

DepartingEU/EEA¹for Scandinavia and Finland

699 16.6

FlightswithinEU/EEA¹ 1 0

DepartingEU/EEA1foroutsideEU/EEA 0 0

Outside EU/EEA

DepartingfromoutsideEU/EEA boundforScandinavia/Finland

830 19.7

DepartingfromoutsideEU/EEA boundforEU/EEA¹oroutsideEU/EEA

1 0

Total 4,210 1001) Excluding Denmark, Sweden, Norway and Finland, which are reported separately.

CO2 EMISSIONS FOR SCANDINAVIAN AIRLINES AIRCRAFT OPERATIONS FISCAL YEAR 2019

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Share of CO2 emissions The following observations were made in an analysis of our total CO2 emissions in FY 2019:• Flights shorter than 500 km were responsible for 14%ofouremissions,flightsbetween500and800kmfor10%,flightsbetween800and3,000kmfor34%,andflightslongerthan3,000kmfor42%.

• Domesticflightswereresponsiblefor17%ofouremissionsandinternationalflightsfortheremainder.

A key point is that most of our emissions come from flightswhereairtravelisthemosttimeefficientmeansof transport. SAS makes it possible for people to make these journeys that enable them to play their part in our global society.

Our focus areas to reduce emissionsOur environmental program includes the following emission-related areas, which are all described in more detail below:•Increasefuelefficiency• Biofuel & Emerging technologies• More sustainable Products & Services



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INCREASE FUEL EFFICIENCYFleet renewal Continuousfleetrenewalisavitalpartofoureffortsto reduce greenhouse gas emissions from our aircraft operations.SAS'strategyistoensurelong-termprofit-abilitythroughawell-balancedfleetplan.Throughouttheyears,wehavecontinuouslyrenewedourfleetbyreplacinglessefficientaircraftwithmoreefficient.In2016, SAS started to introduce the A320neo to replace the B737NG.

During the year, we received seven A320neos. By 31 October 2019, we had received 27 of the 80 A320neo aircraft ordered. By 2023, we plan to operate a single typeaircraftfleetinthe140–200seatrangewhenallA320neos are delivered. Based on performance data, the A320neo aircraft shows a substantial improve-ment in fuel consumption and noise emissions. The A320neo has 15–18% lower fuel consumption on a typicalshort-haulflightcomparedwiththepreviousgeneration, the A320ceo.

During FY 2019, we placed an order for three A321LRs withfirstdeliveryin2020.InDecember2019,ourfirstA350arrived,whichwillreplacethelessfuel-efficientA340.

The aircraft we use are either owned, leased or wet-leased. Owned and leased aircraft are operated by SAS Scandinavia or SAS Ireland. Wet-leased aircraft are operated by a number of Regional production partners using regional jets and turboprop aircraft.


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Atyearend,theSASfleetconsistedof158aircraft(16long-haul aircraft, 109 short-haul aircraft and 33 aircraft flownbyregionalproductionpartners).Theaverageageoftheentireaircraftfleetwas10.2yearsatyearend.

During the year, SAS launched a new aircraft livery, which is a visual proof that we are investing in a new fuel-efficientfleet.

Right sizingSAS offers a comprehensive network of destinations and routes for different passenger volumes, which requiresafleetofaircraftofdifferentsizesandranges.With our Regional production partners we can opti-mize our schedule and aircraft size to optimally meet demand, particularly on regional routes with relatively low demand. This unique capacity to switch aircraft size to meet demand enables us to optimize our fuel use and emissions per seat kilometer. We also draw on ourextensiveexperiencetoconstantlydriveefficientaircraft planning.

Regional production partnersDuring the year our strategic wet-lease partners imple-mented a digitalized way of working utilizing iPad’s instead of paper. The long-term partners have signed SAS' Supplier Code of Conduct and initiated fuel saving programs.

Fuel efficiency programWe have a comprehensive long-term fuel saving pro-gram integrated into our operations. An important aspectofincreasingfuelefficiencyistoensurethatallemployees in SAS airline operations have the prereq-uisitesandknowledgetopromotefuelefficiency.Key

functions are those responsible for network planning, products and services, as well as employees involved in aircraft operations.

Ongoing activities include optimizing operating proce-duresandsupportsystemstopromotefuelefficiency.Anychangemustmaintainthehighestlevelofflightsafetystandardsandbalancefuelefficiencywithotheroperational costs, such as maintenance costs and air-space charges.

More efficient air spaceSince the early 2000s, we have worked with various stakeholders and made numerous investments to enableandpreparefortheintroductionofamoreeffi-cientEuropeanairtrafficcontrolsystem.Theresponsi-bility to implement this important transformation, lies within authorities. The process to implement the Single European Sky project is now in the deployment phase and the plan is to revolutionize airspace when fully implementedbyoptimizingflightpathsandsignifi-cantly reducing emissions.

Collaboration with aircraft and engine manufacturersIn May 2019, we signed a Memorandum of Under-standing with Airbus, read more about this in section 'Electric and Hybrid aircraft'. Through our ongoing environmental work, we engage with various aircraft and engine manufacturers, pro-ducers of interiors and other aircraft installations. Environmental performance and criteria are integrated into all decision-making procurement processes for new aircraft and Regional production partners.



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BIOFUEL & EMERGING TECHNOLOGIESFor over a decade, we have worked on various activities to promote the development of alternative and more sustainable aviation fuels (SAF), such as biofuels. It is essential that low-carbon jet fuels are commercial-ized in order to meet our own and the airline industry’s environmental and climate objectives, and to secure alternatives to fossil fuels that are expected to become scarcer and potentially more expensive in the future.

We continue to ask for biofuel quotes in all jet-fuel tenders in order to indicate that we are prepared to purchase biofuel if the sustainability criteria are in place and the price is competitive. SAS is involved in a number of national and international projects, forums and networks to accelerate the commercializa-tion of SAF production in Scandinavia. These include theIATA/ATAGbiofuelnetwork,RISE,SAFUG,NISA,Preem and various Scandinavian interest organizations. During FY 2019, SAS secured agreements amounting to 455 tonnes and used 166 tonnes. In order to further develop our customer offering, the possibility for cus-tomers to add biofuel to their tickets was introduced in theonlinebookingflowfromSeptemberandresultedin approximately 60 tonnes sold by 31 October 2019.

Our main sustainability criteria for biofuels are that their production is sustainable in the long term, does not compete with food production or access to pota-ble water, does not harm biodiversity and uses as little land area as possible. According to IATA, depending on production method, biofuels can reduce lifecycle CO2 emissions by up to 80%.


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Electric and hybrid aircraftThere are several development projects ongoing aimed at commercializing electrically propelled aircraft after 2025 – including either fully electric or hybrid aircraft. Initially, the projects are targeting the 10–15 seat marketwithaonetotwo-hourflightrange.Themajoraircraft manufacturers anticipate having 100 seat electric aircraft on the market beyond 2040.

SAS and Airbus signed a Memorandum of Under-standing in May 2019 with the aim of accelerating the development of a 100-seat aircraft with technology enabling full-electric, hybrid or hydrogen propulsion during the 2030s. Within the agreement SAS and Airbus cover different topics connected to the com-mercialization of the technology, such as SAS business needs, charging capabilities, operational possibilities and boundaries etc.

We put a lot of efforts into our engagement with Airbus and strongly support the development in various initiatives within this area. We strongly believe that we will experience a major technology shift during the 2030s with the commercialization of several full- electric, hybrid or hydrogen aircraft.

SAS also participates in The Nordic Network for Electric Aviation (NEA). The network aims at adress-ing the prerequsites for commercialization of electric aircraft in the Nordic region. The network is managed by RISE and other participants are Heart Aerospace, Swedavia, Avinor, and other Nordic airlines.



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OTHER ENVIRONMENTAL TOPICSEmissions of ozone-depleting substances Airlines must submit annual reports on their use, consumption, leakage and storage of halon to the authorities. In FY 2019, SAS Scandinavia reported oneinstancewherehalonwasusedasafiresafety precaution, all according to procedures.

Emissions calculations and CO2 offsettingWe launched carbon offsetting options for our custom-ers in 2006. In the SAS emissions calculator, which is available on www.sasgroup.net, greenhouse gas emis-sioncalculationsareprovidedforSASflights.Duringthe year, we started the development of a new improved emission calculator with launch in December 2019. We carbon offset all Youth travel with SAS and our staff tickets. As of February 2019, we also carbon offset all SAS tickets for our EuroBonus members. For FY 2019, we have offset 1.2 million tonnes of CO2, or 32% of the passenger-related CO2 emissions. The offsetting is conducted through purchase of emission reduc-ing mechanisms connected to third-party renewable energy projects in Asia.

Glycol, diesel and petrol consumptionGlycol is used when deicing aircraft. We lowered our usage of glycol to 2,807 (3,149) thousands liters in FY 2019. The reduction was primarelly due to a new support tool for quantity decision making, and the fact that the weather was much colder in FY 2018.

We use vehicles to provide maintenance and ground-related services at airports. We follow air-port regulations and work toward switching to

vehicles with lower environmental impact. At our main bases, all vehicles are leased, and contracts and fuel consumption are continuously followed-up. SAS Cargo also monitors CO2 emissions per cargo tonne kilometer from its sub-contracted ground trucking operations.

Some spillages were reported in conjunction with ground handling during the year. These were properly managed according to procedures.

Emissions from energy consumption in buildingsWe continuously work to reduce our energy consump-tion. During FY 2019, we upgraded the lights in our hangars and hangar service center in Oslo to LED light-ingwhichwasearlierdoneatArlandaandKastrup.Ourenergy consumption decreased due to more effective lightingbutalsotolessbuildingfloorspacebeingused.This is mainly due to the substantial reduction of our own operations in recent years.

GREENHOUSE GAS EMISSIONS, SCOPE 2

Unit FY 2019 FY 2018Base year

2010

Energy

CO2 energy 1,000 tonnes 9.8 10.0 24.9

As of CO2 electricity 1,000 tonnes 4.6 4.7 12.3

As of CO2 heating 1,000 tonnes 5.3 5.3 12.6

Energy intensity CO2kg/m2 31 31 -

Scope 3We have control of our own business trips on SAS flightswhichgeneratedapproximately9,500tonnesCO2 during the year. We are investigating and evaluat-ing how to get suppliers to report our scope 3.


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NoiseAircraft noise is perceived to be the most material impact for local airport stakeholders. There are strict regulationsinplacealongflightpathsthatareclosetoresidential areas. During FY 2019, noise emissions at take-off decreased 0.5% and 10% compared to 2010. This is due to the introduction of newer and more quiet aircraft.

SAS received four noise violation reports in FY 2019, oneoftheseledtolimitedfinancialimplicationsandone is still under investigation. The number of breaches has declined in recent years as a result of the procure-ment of quieter aircraft and improvement initiatives, suchasspecificflightsimulatortrainingscenariosflyingtoandfromairportswithstrictnoiseregulations.

WasteWastefromouroffices,groundservicesandtechni-cal maintenance is measured and divided into sorted, unsorted and hazardous waste. We work continuously to improve the recycling of onboard waste, although this is challenging as waste must be handled in accord-ance with national legislation. The legislation often implies a treatment that does not enable sorting or recycling. We do however recycle aluminum cans at all our Scandinavian base stations. All disposal of waste is taken care of by third party supplier.

Plasticandfoodwastehasalsobeensignificantlyreduced by our pre-ordering meal services that ensure the correct amount of meals are taken onboard.

SAS pop-up restaurant “Lokal” transformed food waste from the American festival South by Southwest, to nine-course gourmet dining during the festival. The

“Lokal” restaurant concept aligns with the ambition of SAS to pioneer the travel industry by taking steps to reduce food waste by enhancing the pre-order service.

Jet fuel spillsIn FY 2019, a few fuel leaks were reported when refue-lingaircraftwithSKflightnumbers.Thesewere handled according to procedures.

Environmental regulations and complianceBesidesenhancingresourceefficiencyandimprovingenvironmental performance, our sustainability work ensures that SAS operations comply with all applicable environment-related laws and regulations. No severe incidents breaching any environmental permits were reported in FY 2019.

Environment-related costsIn FY 2019, SAS external environment-related user chargesandtraveltaxesamountedtoMSEK1,807(1,693). These charges and travel taxes comprised of environment-related travel taxes and user charges that are sometimes associated with the environmental per-formance of aircraft and are included in landing fees. Our environmental taxes in Sweden and in Norway amountedtoMSEK1,099.

The aviation industry pays for its CO2 emissions within the EU through the European Union Emission Trading Scheme (EU-ETS), which is an established market-based measure. SAS expensed emission rights related to the

Unit FY 2019 FY 2018Base year

2010

Sorted waste tonnes 1,881 1,902 -

Unsorted waste tonnes 171 175 815

Hazardous waste tonnes 183 146 302

EU-ETSamountedtoMSEK247(110)inFY2019.

We believe that market-based measures should not dis-tort competition but should address emission reduction targets and create incentives for continuous improvement. SAS has supported the development of a global, mar-ket-based solution for airline emissions for many years.

The UN aviation organization, the International Civil Aviation Organization (ICAO), has decided on a global market-based measure for implementation by 2021 – the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The key elements of a global solution should not distort competi-tion and should incorporate the UN’s CBDR princi-ples (Common But Differentiated Responsibility). Atpresent,wearepreparedtofulfillourreporting obligations for our emissions. Based on the structure of the scheme we cannot estimate an annual cost yet.

From 2020 fuel suppliers in Norway are required to blend-in0.5%biofuelonallflightsfueledinNorway.There is a process to introduce a biofuel mandate in Sweden. The suggestion is to introduce the system in 2021 and start with approximately 1% biofuel blend-in.

SAS fully supports the Polluter Pays Principle and takes responsibility for its emissions. However we opposes to the Swedish and Norwegian taxes that don't address the actual CO2 emissions and are in addition to EU-ETS or the soon to be introduced CORSIA. The result is a patch-work of economic measures without incentives to reduce CO2 emissions. For example, a passenger onboard an A320neo aircraft with 50% biofuel pays the same tax as a passenger onboard an aircraft two generations older, despite having approximately 65% lower emissions.


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Environment-related liabilitiesSAS has no known major environment-related liabilities or contingent liabilities, such as contaminated land.

Environment-related investmentsAccording to SAS guidelines, our investments are to be both environmentally and economically sound. This ensuresthattheycontributetoourprofitabilityandhelpensure we can meet future environmental requirements.

DuringFY2019,nosignificantenvironment-relatedinvestments were conducted. This is because our preferred solution is leasing, rather than investing in aircraft, vehicles, computers, etc.

SUSTAINABLE PRODUCTS & SERVICES We continuously develop our products and services to make them as sustainable as possible in terms of resources and materials. We have shifted to a life cycle perspective in recent years, which has enabled us to identify and make the case to use more sustainable solutions. We are also working together with suppliers and customers to develop more sustainable products and services throughout the value chain. During the year, we integrated sustainability as high priority in all strategic supplier relations and the sourcing strategy. For example, we have strategic partnerships with key material suppliers, engine manufacturers, fuel suppliers and ground transport suppliers etc. with the aim of developing more sustainable solutions.


OUR APPROACH TO EMPLOYEESAs an employer, our responsibility is to ensure decent working conditions in the work environments that are shaped by our operations, mainly in the Nordic region. SAS is also responsible for providing personal and professional development opportunities. The SAS Work Environment Policy, Leadership Policy, Personnel Policy and Diversity Policy apply to all employees at SAS, and Group Management is ultimately responsi-ble for the policies. The policies are reviewed annually, and activities are followed up within the management system and reported weekly, monthly, quarterly or annuallyaccordingtospecificneeds.

We have a zero-tolerance policy toward all forms of harassment and work continually to counteract harassment through various activities. This is regulated by our Code of Conduct, and a web-based training of the Code is mandatory for all employees.

Develop our competencesTo retain and develop our employee skills, exten-sive training programs are carried out each year. In FY 2019, SAS employees attended approximately 523,000 hours of training (excluding in-air training hours), which equates to an average of 46 hours per employee. Flight crews, technical- and operational ground staff are covered by a number of license and competency requirements from EU-OPS, and the IATA through the IOSA (IATA Operational Safety Audit).

OTHER EMPLOYEE TOPICSLabor practices and decent workThe aviation industry is moving toward new and reformed employment models that reduce costs and increaseflexibility,andinrecentyearsSAShasworkedwith unions within its existing employment model. We uphold our employee obligations regardless of employ-ment model or where employees are based. Employees based in Scandinavia are covered by Scandinavian employment terms, work legislation and tax regimes.

Recruitments and redundancyRedundancies in FY 2019 were handled through negotiations with labor unions in compliance with national laws and agreements.

Cooperation with labor unionsDay-to-day collaboration with labor unions is mainly carried out nationally with unions that have collective agreements with SAS. Collaborations take place within the framework of national laws and agreements affect-ing the unit concerned.

Employee representatives from the Scandinavian countries sit on the SAS Group Board of Directors. The employees elect representatives from units in the Group’s Scandinavian operations. SAS employees are covered by collective bargaining agreements, with the main exception of a few people as specialists and senior executives at group level.

SDG 5 – GENDER EQUALITY

Goal 5 promotes gender equality and the empow-erment of all women and girls. SAS contributes toward this goal by encouraging gender equality and diversity through its recruitment policy and annual People Review.

SDG 8 – DECENT WORK AND ECONOMIC GROWTH

Goal 8 promotes sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. SAS provides fair working condi-tions for all its employees, partners and suppliers.

Contract negotiations and disputesSAS conducted negotiations and discussions with var-ious unions during FY 2019. This was part of ongoing negotiationstoreducecostsandincreasetheflexibilityof existing union agreements.

DuringFY2019,twolaborconflictsoccurred.Thepilotstrike and the CPH Ground Handling wild cat strike.

Sick leaveSickleaveisasignificantexpenseforsocietythatcanbe caused by physical and mental issues. Our own cal-culation costs for sick leave amounted to approximately MSEK218(212)inFY2019.SASworksactivelytoprevent short and long-term sick leave.

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EMPLOYEESSustainability notes


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A standardized reporting method is implemented for all three Scandinavian countries, and sick leave is reported according to Swedish legislation. Managers, supported by HR, have early follow-ups with sick employees, which have reduced long-term absence.

For crew, special sick leave follow-up teams work in close collaboration with external occupational health and aeromedical specialists. Early contact with employ-ees and support for medical health care and rehabilita-tion programs shorten periods of illness.

Short-term sick leave is reported, and employees are offered medical advice from nurses when reporting illness. In cases of frequent short-term sick leave, SASrequires"afirstdaydoctor’snote."Temporaryworkplaces and special work schedules are offered for better and faster rehabilitation.

During FY 2019, total sick leave at SAS decreased to 5.7% (6.1%). Long-term sick leave, more than 14 days, accounted for 3.8% (4.0%) of the total sick leave at SAS.

Occupational accidentsEfforts in recent years have been made to reducethe number of occupational accidents by prioritizingpreventive action. The decrease during FY2019 is how-ever mainly due to improved processes for systematicfollow-up,educationalactivitiesandclarificationofdefinitionincollaborationwithsafetyrepresentatives,supervisors, HR and labor-management joint safety committees that cover all employees in each country.

Ground handling has the highest frequency of occupa-tional accidents within SAS. Examples of occupational accidents involve crushing, falling and in some cases

by vehicles in connection with baggage handling. The number of occupational accidents leading to absence at SAS was 41 in FY 2019.

Company health servicesOur health services or health and work environment (HWE) function that supports the entire organiza-tion, offers services through in-house or outsourced resources including therapists, stress and rehabilita-tion experts, ergonomic specialists and engineers. The function also offers special services, including aviation medicine, stress management, follow-up of sick leave, healthprofiles,ergonomicsandadviceinhandlingchemicals. Investments are made throughout the organization in various health-promoting activities both in the workplace and during leisure time.

Diversity and equal opportunitiesThe SAS Diversity Policy promotes the equal treatment of all employees and job applicants. Work with equal opportunities includes promoting diversity and equality in all its forms. In FY 2019, gender distribution at SAS was 35% women and 65% men.

SAS DK NO SE Total

No. of employees October reporting fiscalyear(headcount) 3,837 3,414 4,218 11,469

No. of women 1,178 1,241 1,612 4,031

of whom, women, % 31 36 38 35

Total sick leave, % 4.9 8.1 4.7 5.7

Long-term sick leave (more than 14 days), % 3.1 5.7 2.9 3.8

Total number of occupational accidents

with one day sick leave or more 14 18 9 41

Occupational accident frequency lost time-to-injury rate (H value) 1.9 3.5 1.4 2.2

At SAS, there is a traditional split between female- -dominated professions and male-dominated profes-sions. Pilots (4% women), technicians and aircraft maintenance staff (4% women) are traditionally male-dominated, while cabin crew (71% women), check-in and gate personnel at the airports (66% women) are typically female-dominated.

As of October 31, 2019, SAS Group Management comprised of 14% women, the SAS Board of Directors comprised of 45% women and SAS Cargo Leadership Group comprised of 35% women.

SAS works actively to promote equality in traditionally gendered roles and in management by encouraging gender equality and diversity through its recruitment policy and annual people reviews. The SAS recruitment policy states that the best candidate for a particular position is chosen, with the SAS diversity aims in mind.

Age

Legal gender <30 30–49 >50 Total

Women 822 1,329 1,880 4,031

Men 1,369 2,524 3,545 7,438

Total 2,191 3,853 5,425 11,469

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RESPONSIBILITY IS PROFITABLELong-termeconomicprofitabilityiscloselyrelatedtoour responsibility to make environmental improve-mentsandpromotesocietalbenefit.Inmanyways,ourwork on sustainability issues increases our value and competitiveness, for example by using resources more efficientlyandminimizingrisk.

Most of our revenue, expenses and essential industry specificearningsmeasurementsarerelevantfromanenvironmentaland/orsocietalperspective.Crucially,thehighestpossiblefinancialreturnisgeneratedbythebestpossibleresourceutilizationandmostefficientmanagement of the company’s human and material assets.Forexample,aircraftfuelefficiencyandopti-mizing passenger and freight capacity reduces fuel consumption and costs. Reducing sick leave also has strongfinancialincentives.

BUSINESS ETHICS AND ANTI-CORRUPTIONOur management approach is to take an active stance against all forms of corruption and anti- competitive behavior.

The SAS Code of Conduct, Legal Policy and SAS Anti-bribery Policy are applicable to everyone who act on behalf of the SAS Group. The SAS Board of Directors has overall responsibility for implementing the Code of Conduct and monitoring compliance. Compliance is monitored throughout the management system and through internal audits.

SDG 12 – RESPONSIBLE CONSUMPTION AND PRODUCTION

Goal 12 promotes sustainable consumption and production patterns. SAS works continuously with its productdevelopmentandefficiencyimprovementsinorder to reduce its climate and environmental impacts.

Regulations relating to bribery and other improper actions are particularly strict. An example is the ongo-ing ‘Competition Law Compliance Program’ that covers all entities within SAS. The program addresses the most material risks related to corruption and employees that are exposed to corruption risks in their daily work.

During the year, SAS conducted employee anti-bribery training related to the purchase of goods and services and interaction with customers.

SUSTAINABILITY IN OUR SUPPLY CHAINWe have close to 6,000 suppliers that provide products and services. Our supply chain is centered around aircraft operations and the associated services. It includes:• aircraft and engine manufacturers• airport and air navigation service providers• fuel suppliers• catering suppliers• IT suppliers• technical maintenance suppliers• regional production partners• financialservices

Our suppliers are primarily situated in the geographical areaswhereSASroutesareflown.Inlinewithouroper-ational model, we are increasingly outsourcing ground handling, wet-lease, customer services and accounting functions to external suppliers. We continuously review supplierspecificationsandidentifythemostcriticalsuppliers.

Supply chain responsibilitySAS requires that all employees have decent terms of employment regardless of where they are based and that they are free to join trade unions. The SAS Code of Conduct and the SAS Purchasing Policy cover all purchasing activities within SAS. Group Management is responsible for the Purchasing Policy, which is reviewed annually. Activities are followed-up within the management system and reported weekly, monthly, quarterlyorannuallyaccordingtospecificneeds.

SAS is responsible for ensuring that sustainability issues are addressed appropriately, regardless of which supplier provides the product or service.

Supply chain governanceOurestablishedgovernancemodelclarifiessupplychain responsibilities, risks and improvement areas as well as how potential deviations are handled. Responsibility for continuously following up our critical suppliers is centralized and standardized. All SAS suppliers are required to meet our high prior-itized sustainability and social responsibility require-ments, our Purchasing Policy, and the general terms and conditions of the UN Global Compact and other specificsustainabilityrequirements.Sustainability

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RESPONSIBLE BUSINESSSustainability notes


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is highlighted as an evaluation criterion in all SAS sourcing governance.

The criteria depend on the type of product or service and where it is produced, but may include energy efficiency,wastehandling,collectiveagreements,human rights, child labor, etc. Criteria are reviewed and managed in the procurement phase and during the agreement period.

Stakeholder dialogWe have a long tradition of ongoing dialog and coop-eration with a wide range of stakeholders and involve-ment in sustainability-related issues. We want all stakeholders to be able to have a dialog with SAS when they contact us.

An illustration with examples of stakeholder groups engaged by SAS is disclosed at www.sasgroup.net.

In recent years, sustainability issues have gained greater importance for our stakeholders, which is evident in the increased number of sustainability- related questionnaires from corporate customers and requests for on-site audits. From a sustainability perspective, we prioritize cooperation and collabora-tion with customers, authorities and suppliers in order to create the prerequisites for developing solutions to improve our own or the aviation industry’s sustaina-bility performance. Examples are the development of air navigation services and efforts to accelerate the commercialization of sustainable aviation fuels, such as biofuels.

We also prioritize dialog with parties that seek knowl-edge, drive change or support SAS in different ways, for example employees, partners, experts, NGOs, researchers and the media.

Examples of key topics and concerns raised by SAS corporate customers, investors and sharehold-ers include issues related to product responsibility, anti-corruption, greenhouse gas emissions and work-ing conditions. NGOs and the media often address issuesrelatedtothesignificanceofaviationasanenabler for globalization or various views on our envi-ronmental performance. There is a big interest from media on aviation's environmental impact, and we have chosen to take a leading role in the debate. Schools and educational institutions most often seek a deep-ened knowledge on our goals and strategies to reduce greenhouse gas emissions.

We see stakeholder dialog as an opportunity to initiate further engagement on these relevant topics and as input to develop the SAS customer offering and sus-tainability agenda. As an effort to create greater under-standing of the aviation industry, we also participate in various industry and employee organizations.

PRODUCT RESPONSIBILITYWe assume our responsibility for maintaining the highest standards of product responsibility and follow strict policies and the applicable legislation concern-ing health and safety, environmental impact, IT secu-rity and food safety. We also have a responsibility to deliver products and services that are reliable and are produced under decent conditions. The SAS Quality Policy is applicable to all SAS products and services and is overseen and annually reviewed by Group

Management. Activities are followed up within the management system and reported weekly, monthly, quarterlyorannuallyaccordingtotheirspecificneeds.

Flight Safety is highly regulated, and SAS is regularly audited by external parties. The relevant authorities review working conditions for airline personnel regard-ing areas such as working hours, which help to pro-moteflightsafety.

Punctuality and regularity are crucial aspects for the ability to deliver passenger transport on time and as planned. SAS works continuously to monitor and improve punctuality and regularity, which is highly valued by SAS customers. Punctuality is also of high importance for reducing emissions.

IT security and integrity are increasingly important, and SAS has an extensive program to ensure the high level of IT security required. We also comply with the EU General Data Protection Regulation (GDPR) legis-lation and have a dedicated SAS employee to ensure compliance.

SAS CONTRIBUTES TO ECONOMIC DEVELOPMENTOuroperationsbenefitsocietybydirectlyandindirectlycreating economic value and social welfare in the coun-tries and communities where we operate.

Wepromotesignificantdirecteconomicbenefitasan employer and a purchaser of goods and services. In FY 2019, SAS paid wages and salaries totaling MSEK7,296,whichincludedsocialsecurityexpensesofMSEK2,199andpensionsofMSEK875.SAS endeavors to achieve market pay for all employee groups.

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SAS creates economic value by providing the necessary infrastructure to enable smooth passenger journeys and cargo transport to, from and within Scandinavia. Air transport pays the costs for the infrastructure it needstooperate,suchasairports,airtrafficcontroland security. In FY 2019, these costs amounted to MSEK8,288forScandinavianAirlines.Ofthesecosts,ScandinavianAirlinespaidMSEK1,330insecurity-related costs.

SOCIAL INVESTMENTWe support social initiatives that are directly related to our airline operations. We do this by offering our aircraftandrelatedcapabilitiesforsocietalbenefit.

Preparedness for air ambulance operationsSAS has a commercial agreement with the Swedish government to make two specially equipped Boeing 737s available as air ambulances within the framework of the Swedish National Air Medevac (SNAM) in the event of a national emergency. A similar agreement exists with the Norwegian Armed Forces under which SAS is to make a remodeled ambulance service 737-700 available for medical evacuation within 24 hours, and a second aircraft within 48 hours if necessary.

Christmas flightEvery December since 1985, we have supported the Norwegian‘Christmasflight’.TheChristmasflightisanaid campaign carried out by SAS employees together with volunteers throughout the year to collect goods and contributions from various partner companies and private individuals. We provide an aircraft with full oper-ational support, while pilots and crew volunteer in their free time and the fuel is sponsored by a fuel supplier.

Olympic and paralympic partner in Denmark, Norway and Sweden The Olympic Games and The Paralympic Games is one of the many ways in which SAS shares the Scandinavian voice at home and across the world. Values such as respect for the individual and friendship across borders are strong in Scandinavia and some-thing shared by SAS. Cross border meetings create the conditions for sustainable development in society. Meeting, exchanging experiences and sharing values make the world better, something that travel and avia-tion make possible

SAS sport exchange program future olympiansDuring the year, SAS started its Future Olympians sport exchange program in Denmark, Norway and Sweden. The sport exchange program offered three Scandinavian youth teams for an exchange program that took them to Japan to meet local athletes in bas-ketball,trackandfield,andkarateintherun-uptotheSummer Olympics in Tokyo in 2020. SAS shares the view of cross-border friendship being a positive force with the Olympic values.

SAS - U-assistSAS-U-Assistisanon-profitinitiativelaunchedbySAS’ employees in 1979. It is run voluntarily by SAS’ employees, and as a section in the internal SAS’ Club it is supported by SAS. The main focus is to help children in developing countries get a better life through various projects in different countries. More than 500 children have been supported through the projects during 2019. Approximately 95% of the funds raised by SAS - YOU Assist goes directly to the projects, leaving only 5% used for administration.

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The sustainability reporting in SAS Annual and Sustainability Reports, has been subject to third-party review since 1997. The report describes the company’s most essential envi-ronmentalandsocietalaspectsduringfiscalyear 2019 from 1 November 2018, to 31 October 2019.

ABOUT THIS REPORT

The Annual and Sustainability Report has been pre-pared in accordance with the GRI Standards: Core option. The UN Global Compact, UN Sustainability Development Goals, ISO 14001 and CDP were also taken into consideration in the preparation of this report. The sustainability part of this report has been prepared in accordance with the SAS Accounting Policies for Sustainability Reporting.

In accordance with the Swedish Annual Accounts Act,SAS has prepared a statutory Sustainability Report,which has been incorporated into the Annual andSustainability Report 2019, separate from the Reportby the Board of Directors, on pages 129–148. Theauditor's opinion regarding the statutory sustainabilityreport is included on pages 149–150.

This Annual and Sustainability Report is a key part of our commitment to communicate transparently with stakeholders. The 2018 materiality analysis was updated in 2019 and ‘sustainability communication’ wasstillidentifiedasanareaofgreatimportancetoSAS and its stakeholders.

CONTACT INFORMATIONLars Andersen Resare Head of Environment and CSR +46 70 997 23 46 [email protected]



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The SAS Group is referred to as SAS in this Sustainability Report.

External review: material sustainability information and EU-ETSAll material sustainability information in the Annual and Sustainability Report for FY 2019 has been reviewed by KPMG.TheAuditor’sassurancereportcanbefoundonpage 149–150.

KPMGhasverifiedthereportingsystemsregardingCORSIA and the EU trading scheme for emission allow-ancesforflightsundertheSKflightnumber.

External initiativesWe have been a member of the UN Global Compact since 2003 and participate in the Nordic Network. One criterion for publishing company information on the Global Compact website is an annual update – the Communication On Progress (COP). The most recent update of SAS information was completed in June 2019. The UN Global Compact is a pivotal component of the SAS Code of Conduct and the requirements imposed on the company’s suppliers.

We have also chosen to use the UN Sustainable Development Goals (SDGs) as a tool to structure our strategic sustainability agenda. See page 19 for more on our approach to the SDGs.

Examples of organizations related to sustainability issues where SAS is a member:• Member of the Nordic initiative Sustainable Aviation.• Member in Nordic CEOs for a Sustainable Future.• Member in the biofuel cluster Fossilfritt Flyg 2045• Member in The Nordic Network for Electric Aviation • Member of the IATA and participant in the IATA’s

Environmental Committee.• Active in the Nordic working group for environmental

issues in aviation (N-ALM).• Member in Star Alliance, the world’s largest airline

network.• Participation in three national industry organizations:

NHO Luftfart in Norway; Föreningen Svenskt Flyg in Sweden; and Dansk Industri in Denmark.

Accounting policies for sustainability reporting fiscal year 2019‘SAS’ or ‘The SAS Group’ is used throughout the report when referring to our overall operations.For FY 2019, SAS reports its general sustainability results divided into the segments:• Scandinavian Airlines comprises all operations in the

SAS Consortium, including SAS Cargo Group (SCG).• SAS Ground Handling (SGH).


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For environmental responsibility, SAS strives to distinguish between airline and ground operations. Accordingly, the following divisions have been made:• AirlineoperationswithanSKflightnumber.Scope1• Ground handling in SAS Ground Handling (SGH).

SGH conducts ground handling for SAS and other customers, such as other airlines. Scope 1.

• Technical maintenance in SAS Maintenance Production. SAS Maintenance Production conduct technical maintenance primarily for SAS but also for other customers, such as other airlines. Scope 1.

• Freight and mail services within SAS Cargo Group A/S(SCG).Scope1.

• Facilities owned or leased by SAS. Scope 2.

The SAS organizational structure is presented on page 63.

Monitoring sustainability-related dataSAS monitors relevant sustainability key performance indicators(KPIs)onanongoingbasis.SASusesvariousparts of the Lean methodology and follow-ups of these KPIsareconductedwithinthemanagementsystemandreported weekly, monthly, quarterly or annually accord-ingtospecificneeds.

As preparation for external sustainability reporting, there are data collection processes in the management system covering all areas of the SAS sustainability agenda.

SCOPE OF THE SUSTAINABILITY WORKThe SAS Sustainability work should contribute to the evaluation and understanding of our operations and is an overview of our structured sustainability work.



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The goal of the Annual and Sustainability report is to disclose all information necessary to provide the reader with a comprehensive overview of our environmental, societal,andfinancialresponsibilities.

The ultimate responsibility for our sustainability aspects, and their integration in operational activi-ties, lies with Group Management. The Annual and Sustainability Report was reviewed by SAS Group Board of Directors and SAS Group Management in January 2020. The SAS Group Board of Directors sub-mitted the Annual Report FY 2018 and Sustainability Report FY 2018 in January 2019.

GoalsWe have decided to focus on our long-term environ-mental goals for 2030 in this report but have short-term sub-goals within the company and in our continuous sustainability work.

LimitationsThe main principle for sustainability reporting is that all units and companies controlled by SAS are accounted for. This means that sustainability-related data for divested companies owned by SAS during the period is reported wherever possible. The same accounting policiesasforfinancialinformationintheAnnualReport are intended to be used for information in the Sustainability Report.

SAS has a number of production indicators (such as passenger kilometers and tonne kilometers). There are differences between the Annual Report and the Sustainability Report with regards to the disclosure

of the number of passenger kilometers. The Annual Reportusesrevenuepassengerkilometers(RPK)where paying passengers are included, while the SustainabilityReportusespassengerkilometers(PK)where all passengers (including non revenue) are included.

Standarddefinitionsforenvironmentalandsocietaldata have been applied throughout SAS. None of the limitations are considered to have any substantial significance.

Changes in accounting policies and calculating principles This year glycol, energi, water and waste are reported only on main bases ARN, CPH and OSL.

Principles for reporting and calculating external and other environment related costs Where possible, environment-related costs are based on information directly from the accounting system. When this has not been possible, for example, for cal-culations of certain charges and taxes that are included in landing charges, estimates were used based on the number of passengers to a certain destination and the charge or tax per passenger.


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Principles for reporting and calculating environmental data Reported environmental information is based on the followingcalculationsand/orfactors:• Distance, based on WGS84 Great Circle Distance

(GCD) calculations between airport reference points asdefinedinnationalAeronauticalInformationPublication (AIPs).

• PassengerweightforPKcalculationsuses100kgforany person with hand luggage and checked luggage transported. This does not include active crew.

• Cargo and mail, actual weight is used.• Fuel density (kg per liter): –JetA/A-11: Actual density or 0.8 – Diesel: 0.84 – Petrol: 0.73 – Heating oil: 0.84

• CO2 factor (per weight unit of fuel): –JetA/A-11: 3.15 – Diesel: 3.17 – Petrol: 3.12 – Heating oil: 3.17

–Electricity:125.5(grams/kWhbasedon Nordic energy mix)

• Energy conversion of fuels (GWh per 1,000 tonnes): –JetA/A-1:12.0 – Diesel: 12.0 – Petrol: 12.2 – Heating oil: 12.0

• Nitrogen oxides (NOx), factors (per weight unit of fuel): –JetA/A-12 Between 0.00694 and 0.01932

1) Fuel density and CO2factorforJetA/A-1iscalculatedaccordingtoapprovedMRVplan.2)Variesperaircraft/enginecombination.

CO2 emissions per passenger kilometer and cargo tonne kilometer – scope 1SAS has chosen to apply a calculation method to divide the amount of fuel used for passenger and cargo transport before dividing the amount by passenger or cargo tonne kilometer. The method is based on the IATA Carbon Calculator Tool. The assumption is that fuel usage is proportional to weight. Passenger fuel usage is the ratio of total passenger weight to total weight multiplied by the total fuel used. The remainder is allocated to cargo transport.

Total PassengerFuel Usage =

(TotalPassengerWeight/Total Weight)

xTotal Fuel Used

Where, Total Weight =Total Passenger Weight

+TotalFreight/CargoWeight

Total Passenger Weight (kg) =

(Number of Seats x 50 kg)+

(Number of Passengers x 100 kg)

The calculation method allocates 50 kg per seat as a prerequisite for passenger transport and the same weight per passenger as used in all other calculations applied within the industry.

Forcaseswhenflightswereconductedwithoutpas-sengersorfreight/cargotransport,allCO2 emissions were allocated as passenger transport. This may includetrainingflights,positioningflightsbetweenscheduledflights,andflightsto/frommaintenance,etc. The reason for this changed calculation method is to achieve more precise CO2 emissions per produc-tion unit calculations. The previous calculation method essentially involved double accounting, with emissions per passenger kilometer including the fuel used for freight/cargotransportandviceversa.

CO2 emissions per available seat kilometer – scope 1In order to calculate the CO2 emissions for each avail-able seat the assumption is that each seat is occupied by one passenger which corresponds to 100 kg. The metric is calculated by dividing the total CO2 emissions with the total available tonne kilometer and then multi-plied with 0,1 (ie.100 kg or 0,1 tonne).

Principles for reporting and calculating employee dataThe following principles for calculating and reporting societal data have been used.

Occupational accidents (H value)Frequency of occupational accidents (H value) is calculated using the following formula:

No. of occupational accidents with a minimum of one day absence x 1,000,000

Total number of performed working hours per year

Number of employeesIn this report, the number of employees is based on the number of persons during the month of October and sick leavestatisticscalculatedforthefiscalyear.Thestatisticsinclude employees with a budgeted or actual schedule and/orwhoweresickduringtheperiod.

Sick leaveSick leave is reported as the number of days sick in relation to the number of employees multiplied by the number of calendar days. For sick leave, absence due to sick children is excluded. Long-term sick leave (more than 14 days) is reported as a percentage of the total sick leave.



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GRI CONTENT INDEXGRI Standards Disclosure Page number(s) and /or URL(s) Omission

GENERAL DISCLOSURES

GRI 102:General disclosures 2016

102-1 Name of the organization Page 44

102-2 Activities, brands, products, and services Page 4

102-3 Location of headquarters Page 44

102-4 Location of operations Pages 4 and 159

102-5 Ownership and legal form Page 63

102-6 Markets served Pages 4 and 159

102-7 Scale of the organization Pages 80, 92 and 153

102-8 Information on employees and other workers Pages 33-36 and 138-139 SAS only reports on total workforce, not by employment type or contract.

102-9 Supply chain Page 140

102-10 Significantchangestotheorganizationanditssupplychain Pages 9 and 31

102-11 Precautionary Principle or approach Pages 53-60 and 130

102-12 External initiatives Page 143

102-13 Membership of associations Page 143

102-14 Statement from senior decision-maker Pages 11-13

102-15 Keyimpacts,risks,andopportunities Pages 53-60 and 130

102-16 Values, principles, standards, and norms of behavior Pages 4, 19 and 130

102-18 Governance structure Page 64

102-40 List of stakeholder groups Page 141 and www.sasgroup.net

102-41 Collective bargaining agreements Page 138

102-42 Identifying and selecting stakeholders Page 141 and www.sasgroup.net

102-43 Approach to stakeholder engagement Page 141 and www.sasgroup.net

102-44 Keytopicsandconcernsraised Pages 19, 130 and 143

102-45 Entitiesincludedintheconsolidatedfinancialstatements Pages 4, 63 and 143-144

102-46 DefiningreportcontentandtopicBoundaries Pages 143-144

102-47 List of material topics Page 19

102-48 Restatements of information N/A

102-49 Changes in reporting Page 144

102-50 Reporting period Pages 44 and 143

102-51 Date of most recent report Pages 144

102-52 Reporting cycle Pages 44 and 143

102-53 Contact point for questions regarding the report Pages 143 and 158

102-54 Claims of reporting in accordance with the GRI Standards Page 143

102-55 GRI content index Pages 146-148

102-56 External assurance Pages 149-150



Environment

Employees


About this report

GRI Content Index

Assurance Report


MARKET AND STRATEGY





GRI Standards Disclosure Page number(s) and /or URL(s) Omission

ANTI-CORRUPTION

GRI 103:Management approach 2016

103-1 Explanation of the material topic and its Boundaries Pages 18-19 and 143-145

103-2 The management approach and its components Pages 130 and 140

103-3 Evaluation of the management approach Page 130

GRI 205: Anti-Corruption 2016 205-1 Operations assessed for risks related to corruption Pages 53, 57, 130 and 140

ANTI-COMPETITIVE BEHAVIOR





GRI 206: Anti-competitive behavior 2016 206-1 Legal actions for anti-competitive behavior, anti-trust, and monopoly practices Pages 53,57, 130 and 140

EMISSIONS



103-2 The management approach and its components Pages 130-131

103-3 Evaluation of the management approach Pages 130-131

GRI 305: Emissions 2016

305-1 Direct (Scope 1) GHG emissions Pages 132 and 145

305-2 Energy indirect (Scope 2) GHG emissions Pages 135 and 145

305-4 GHG emissions intensity Pages 135 and 145

305-7 Nitrogenoxides(NOX),sulfuroxides(SOX),andothersignificantairemissions Pages 132 and 145

EFFLUENTS AND WASTE



103-2 The management approach and its components Pages 130, 137 and 140


GRI 306: EffluentsandWaste2016

306-2 Waste by type and disposal method Page 136

SUPPLIER ENVIRONMENTAL ASSESSMENT


103-1 Explanation of the material topic and its Boundaries Pages 19 and 143-145


103-3 Evaluation of the management approach Page 130 and 140-141

GRI 308:Supplier Environmental Assessment 2016

308-1 New suppliers that were screened using environmental criteria Pages 140-141

OCCUPATIONAL HEALTH AND SAFETY


103-1 Explanation of the material topic and its Boundaries Pages 19 and 143-145


103-3 Evaluation of the management approach Pages 130 and 138-139

GRI 403:Occupational Health and Safety 2016

403-1 Workers representation in formal joint management–worker health and safety committees

Pages 138-139

403-2 Types of injury and rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities

Pages 138-139 Not reported by gender. No fatalities.



Environment

Employees


About this report

GRI Content Index

Assurance Report


MARKET AND STRATEGY





GRI Standards Disclosure Page number(s) and /or URL(s) Omission

TRAINING AND EDUCATION


103-1 Explanation of the material topic and its Boundaries Pages 19, 35 and 143-145

103-2 The management approach and its components Pages 35, 138 and 140

103-3 Evaluation of the management approach Pages 138-139

GRI 404:Training and Education 2016

404-1 Average hours of training per year per employee Page 138 Not reported by gender.

DIVERSITY AND EQUAL OPPORTUNITY



103-2 The management approach and its components Pages 138-139

103-3 Evaluation of the management approach Pages 130 and 140

GRI 405:Diversity and Equal Opportunity 2016

405-1 Diversity of governance bodies and employees Page 139

SUPPLIER SOCIAL ASSESSMENT



103-2 The management approach and its components Page 140

103-3 Evaluation of the management approach Pages 130 and 140-141

GRI 414:Supplier Social Assessment 2016

414-1 New suppliers that were screened using social criterias Page 140-141

CUSTOMER HEALTH AND SAFETY



103-2 The management approach and its components Page 140


GRI 416: Customer Health and Safety 2016

416-1 Assessment of the health and safety impacts of product and service categories

Page 141



Environment

Employees


About this report

GRI Content Index

Assurance Report


ASSURANCE REPORTAUDITOR’S LIMITED ASSURANCE REPORT ON SAS AB SUSTAINABILITY REPORT AND STATEMENT REGARDING THE STATUTORY SUSTAINABILITY REPORTTo SAS AB, Corp. Id. 556606-8499

INTRODUCTIONWe have been engaged by the Board of Directors and theChiefExecutiveOfficerofSASABtoundertakealimited assurance engagement of SAS AB Sustainability Reportforthefinancialyear2018-11-01–2019-10-31.SASABhasdefinedthescopeoftheSustainabilityReport that also is the Statutory Sustainability Report on page 2 in this document.

RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE CHIEF EXECUTIVE OFFICER TheBoardofDirectorsandtheChiefExecutiveOfficerare responsible for the preparation of the Sustainability Report including the Statutory Sustainability Report in accordance with applicable criteria and the Annual AccountsActrespectively.Thecriteriaaredefinedonpage 143 in the Sustainability Report, and are part of the Sustainability Reporting Standards published by GRI (The Global Reporting Initiative), that are applica-ble to the Sustainability Report, as well as the account-ing and calculation principles that the Company has developed. This responsibility also includes the internal control relevant to the preparation of a Sustainability Report that is free from material misstatements, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY Our responsibility is to express a conclusion on the Sustainability Report based on the limited assurance procedures we have performed and to express an opinion regarding the Statutory Sustainability Report. Our assignment is limited to the historical information that is presented and does not cover future-oriented information.

We conducted our limited assurance engagement in accordance with ISAE 3000 Assurance engagements otherthanauditsorreviewsoffinancialinformation.A limited assurance engagement consists of making inquiries, primarily of persons responsible for the prepa-ration of the Sustainability Report, and applying analyti-cal and other limited assurance procedures. Our exami-nation regarding the Statutory Sustainability Report has been conducted in accordance with FAR’s accounting standard RevR12 The auditor’s opinion regarding the Statutory Sustainability Report. A limited assurance engagement and an examination according to RevR 12 is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden.

ThefirmappliesISQC1(InternationalStandardonQuality Control) and accordingly maintains a compre-hensive system of quality control including documented policies and procedures regarding compliance with ethi-cal requirements, professional standards and applicable legal and regulatory requirements. We are independ-ent of SAS AB in accordance with professional ethics foraccountantsinSwedenandhaveotherwisefulfilledour ethical responsibilities in accordance with these requirements.

The limited assurance procedures performed and the examination according to RevR 12 do not enable us to obtain assurance that we would become aware of all significantmattersthatmightbeidentifiedinanaudit.The conclusion based on a limited assurance engage-ment and an examination according to RevR 12 does not provide the same level of assurance as a conclusion based on an audit.

MARKET AND STRATEGY







Environment

Employees


About this report

GRI Content Index

Assurance Report


OurproceduresarebasedonthecriteriadefinedbytheBoardofDirectorsandChiefExecutiveOfficerasdescribed above. We consider these criteria suitable for the preparation of the Sustainability Report.

Webelievethattheevidenceobtainedissufficientandappropriate to provide a basis for our conclusions below.

CONCLUSIONSBased on the limited assurance procedures performed, nothing has come to our attention that causes us to believe that the Sustainability Report is not prepared, in all material respects, in accordance with the criteria definedbytheBoardofDirectorsandChiefExecutiveOfficer.

A Statutory Sustainability Report has been prepared. Stockholm, January 29, 2020

KPMGAB Tomas Gerhardsson Torbjörn WestmanAuthorized Public Expert Member of FARAccountant

MARKET AND STRATEGY







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Employees


About this report

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OTHEROPERATIONAL KEY FIGURES | TEN-YEAR FINANCIAL OVERVIEW

DEFINITIONS | SHAREHOLDER INFORMATION | DESTINATIONS

MARKET AND STRATEGY






OPERATIONAL KEY FIGURES

FY19 FY18 FY17 FY16 FY15 FY14 FY13Jan–Oct

2012 2011 2010Passenger traffic-related key figuresNumber of destinations served, scheduled 127 125 123 118 119 125 150 136 128 127Number of flights, scheduled 287,969 291,908 298,100 297,481 293,898 294,679 402,460 338,870 396,134 367,817Number of passengers, total, (000)1 29,761 30,082 30,065 29,449 28,884 29,408 30,436 25,916 28,990 27,096Number of passengers, scheduled (000) 28,451 28,794 28,625 27,738 26,941 27,061 28,057 23,979 27,206 25,228Available seat km, total (million)1 52,371 52,781 52,217 48,620 44,289 45,158 44,629 36,126 40,953 38,851Available seat km, scheduled (million) 48,471 49,023 48,303 44,956 40,877 40,971 40,583 32,813 37,003 34,660Revenue passenger km, total (million)1 39,375 39,946 40,078 36,940 33,781 34,714 33,451 27,702 30,668 29,391Revenue passenger km, scheduled (million) 35,825 36,496 36,360 33,508 30,561 30,686 29,650 24,746 27,174 25,711Load factor, total (%)1 75.2 75.7 76.8 76.0 76.3 76.9 75.0 76.7 74.9 75.6

Weight-related key figuresAvailable tonne km, ATK, total (mill. tonne km) 6,797 6,859 6,746 6,179 5,553 5,617 5,527 4,475 5,089 4,835Available tonne km, scheduled (mill. tonne km) 6,302 6,372 6,251 5,741 5,132 5,119 5,042 4,098 4,604 4,318Available tonne km, other (mill. tonne km) 495 487 495 437 421 498 485 377 485 517Revenue tonne km, RTK, total (mill. tonne km) 4,645 4,808 4,819 4,404 3,989 4,067 3,930 3,201 3,555 3,448Passengers and excess baggage (mill. tonne km) 3,907 3,964 3,976 3,666 3,354 3,446 3,308 2,733 3,018 2,897Total load factor, total (%) 68.4 70.1 71.4 71.3 71.8 72.4 71.1 71.5 69.9 71.3Traffic revenue/revenue tonne km (SEK) 8.68 8.40 7.99 8.11 8.92 8.34 9.53 9.94 10.23 10.42

Key figures for costs and efficiencyUnit cost 0.78 0.72 0.69 0.70 0.79 0.75 0.80 0.81 0.86 0.95Jet-fuel price paid incl. hedging, average (USD/tonne) 750 675 566 583 757 978 1,093 1,116 970 773

Revenue-related key figuresPassenger revenue/revenue passenger km, scheduled, yield (SEK) 0.99 0.93 0.90 0.91 1.00 0.94 1.07 1.09 1.12 1.16Passenger revenue/available seat km, scheduled, (SEK) 0.73 0.70 0.68 0.68 0.75 0.70 0.78 0.82 0.82 0.86

1) Total production includes scheduled traffic, charter, ad hoc flights and EuroBonus flights, etc. This means that the figures deviate from the published traffic statistics.

Definitions on page 156.


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Other

Ten-year financial overview

Shareholder information

Destinations

Operational key figures

Definitions

FY19 FY18 FY17 FY16 FY15 FY14 FY13Jan–Oct

2012 2011 2010Environmental key figuresCO2, gram/passenger km2 95 95 96 99 101 100 104 118 122 121CO2, gram/available seat km, total 62 63 65 67 69 70 70 69 74 74

Key figures for Scandinavian AirlinesMarket share, to, from and within Scandinavia, (%) 30 32 31 31 32 33 32 33 33 34Yield, currency-adjusted change, (%) 3.2 1.6 -2.9 -7.7 4.0 -7.4 -0.4 -1.0 -2.0 -7.4PASK, currency-adjusted change, (%)2 2.5 0.5 -1.9 -8.0 3.8 -5.8 -3.2 1.1 -1.3 -0.2Total unit cost, change, (%) 7.7 2.2 -3.5 -11.1 -3.8 -2.2 -6.0 -0.1 2.0 -7.8No. of daily departures, scheduled, annual average 789 800 817 813 805 807 791 773 683 667Number of aircraft in service3 158 157 158 156 151 156 151 156 157 159Aircraft, block hours/day 9.3 9.6 9.6 9.3 8.8 9.0 8.7 8.2 8.1 7.5Pilots, FTEs 1,285 1,273 1,345 1,300 1,228 1,396 1,413 1,328 1,304 1,297Pilots, block hours/year 637 687 686 681 688 685 665 659 650 630Pilots, payroll expenses, MSEK4 2,536 2,580 2,435 2,489 2,370 2,459 2,584 2,979 2,826 –Cabin crew, FTEs 2,516 2,522 2,635 2,574 2,325 2,564 2,607 2,613 2,528 2,442Cabin crew, block hours 734 771 777 759 762 762 721 674 660 640Cabin crew, payroll expenses, MSEK4 1,738 1,767 1,613 1,647 1,546 1,587 1,769 2,087 2,076 –Regularity, % 97.5 98.0 98.9 98.4 98.7 99.0 98.8 99.0 98.5 96.6Punctuality (%) within 15 min. 80.3 77.7 83.6 83.9 87.9 88.4 86.2 89.4 88.9 86.9Customer satisfaction, CSI 72 70 72 73 74 72 71 72 72 70

1) Carbon dioxide emissions per passenger kilometer comprising all passengers on board all flights (scheduled, charter, etc.). The method has been adjusted from fiscal year 2013 onward.

2) Refers to RASK prior to fiscal year 2014.

3) Including wet leases.

4) Excluding restructuring costs.


Operational key figures, continued


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Definitions

TEN-YEAR FINANCIAL OVERVIEW

2019 2018 2017 2016 2015 2014 2013 20121 2011 2010

Statements of income, MSEKRevenue 46,736 44,718 42,654 39,459 39,650 38,006 42,182 35,986 41,412 41,070Operating income before amortization and depreciation 2,988 3,783 2,844 2,962 2,877 1,576 3,647 955 3,019 246Depreciation, amortization and impairment -1,924 -1,763 -1,635 -1,367 -1,446 -1,443 -1,658 -1,426 -2,413 -1,885Share of income in affiliated companies -10 35 4 39 37 30 25 32 28 12Income from the sale of shares in subsidiaries and affiliated companies 0 -4 -21 -7 – 6 700 400 – -73Income from the sale of aircraft, buildings and slot pairs 112 479 995 265 777 -16 -118 -247 12 -239Financial income 172 129 148 91 124 102 50 96 224 174Financial expenses -544 -609 -611 -553 -632 -1,130 -999 -1,055 -1,030 -1,041Income before tax, EBT 794 2,050 1,725 1,431 1,417 -918 1,648 -1,245 -1,629 -3,069Income before tax and items affecting comparability 786 2,136 1,951 939 1,174 -697 919 23 94 -444

Balance sheets, MSEKFixed assets 22,281 21,127 20,252 19,319 18,512 18,291 18,600 29,692 29,883 30,591Current assets, excluding cash and cash equivalents 2,968 3,316 3,467 4,065 3,556 3,617 3,462 4,273 5,494 6,191Cash and cash equivalents 8,763 9,756 8,836 8,370 8,198 7,417 4,751 2,789 3,808 5,043Shareholders’ equity 5,372 7,268 8,058 6,026 6,339 4,907 3,226 11,156 12,433 14,438Long-term liabilities 13,525 12,011 9,363 9,822 10,275 10,384 10,173 12,111 13,889 13,932Current liabilities 15,115 14,920 15,134 15,906 13,652 14,034 13,414 13,487 12,863 13,455Total assets 34,012 34,199 32,555 31,754 30,266 29,325 26,813 36,754 39,185 41,825

Cash-flow statements, MSEKCash flows from operating activities 3,318 4,559 2,443 3,663 3,036 1,096 1,028 2,562 -482 -155Investments -6,207 -6,840 -7,315 -5,960 -4,306 -2,113 -1,877 -2,595 -2,041 -2,493Sale of fixed assets, etc. 1,627 4,161 7,228 3,345 3,193 1,632 1,644 1,976 517 697Cash flow before financing activities -1,262 1,880 2,356 1,048 1,923 615 795 1,943 -2,006 -1,951Hybrid bond 1,474 – – – – – – – – –New issue – 1,223 – – – 3,500 – – – 4,678Redemption of preference shares -1,112 -2,579 – – – – – – – –Dividends -26 -228 -350 -350 -350 -175 – – – –External financing, net -67 621 -1,537 -530 -787 -1,275 1,171 -2,961 763 -1,859Cash flow for the year -993 917 469 168 786 2,665 1,966 -1,018 -1,243 868

1) As a consequence of the Group’s fiscal year changing to 1 November–31 October, fiscal year 2012 was shortened to the period 1 January–31 October. Yield-based key figures are calculated based on income items for a 12-month period.


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Definitions

2019 2018 2017 2016 2015 2014 2013 20121 2011 2010

Key and alternative performance measures2

EBIT margin, % 2.5 5.7 5.1 4.8 5.6 0.4 6.2 -0.8 1.6 -4.7Return on shareholders’ equity, % 14 22 18 24 18 -15 457 -25 -12 -17Return on invested capital, % 8 14 13 12 14 4 18 -1 4 -5Adjusted financial net debt/EBITDAR 3.7x 2.7x 3.1x 3.2x 3.0x 4.2x 3.2x 6.5x 3.0x 8.0xFinancial preparedness, % 38 42 37 41 40 37 26 31 33 34Equity/assets ratio, % 16 21 25 19 21 17 12 30 32 35Adjusted equity/assets ratio, % 9 13 15 12 13 11 8 24 26 28Financial net debt, MSEK 328 -2,432 -2,799 -1,166 -726 1,102 4,567 6,549 7,017 2,862Debt/equity ratio 0.06 -0.33 -0.35 -0.19 -0.11 0.22 1.42 0.59 0.56 0.2Adjusted debt/equity ratio 4.70 2.70 2.28 3.08 2.65 3.14 5.13 1.54 1.33 0.89Interest expense/average gross debt, % 4.3 6.4 6.6 5.4 5.6 7.4 7.6 8.1 7.3 6.9Interest-coverage ratio 2.5 4.4 3.8 3.6 3.2 0.2 2.6 -1.6 -0.6 -1.9

1) As a consequence of the Group’s fiscal year changing to 1 November–31 October, fiscal year 2012 was shortened to the period 1 January–31 October. Yield-based key figures are calculated based on income items for a 12-month period.

2) SAS calculates various Alternative Performance Measures (APMs) that complement the metrics defined in the applicable rules for financial reporting. The APMs facilitate comparison between different periods and are used for internal analysis of the business’s performance, development and financial position, and are therefore deemed to provide valuable information to external stakeholders, such as investors, analysts, rating agencies and others. For definitions, refer to the Definitions & concepts section. A list of the APMs deemed of sufficient material importance to specify is available at www.sasgroup.net under Investor Relations.

The APMs are calculated using averages of the qualifying periods’ balance-sheet items. The return on invested capital, adjusted equity/assets ratio and adjusted debt/equity ratio are calculated using net capitalized leasing costs, whereby operational leasing commitments for aircraft were taken into consideration.


Ten-year financial overview, continued

Other



Destinations


Definitions


MARKET AND STRATEGY





DEFINITIONS

AEA – The Association of European Air-lines. An association of the major European airlines.AOC (Air Operator Certificate) – Permits for flight operations.ASK, Available Seat Kilometers – The total number of seats available for passengers multiplied by the number of kilometers which they are flown.ATK, Available tonne kilometers – The total number of tonnes of capacity available for the transportation of pas-sengers, freight and mail multiplied by the number of kilometers which this capacity is flown.Return on shareholders’ equity – Net income for the period attributable to shareholders in the Parent Company in relation to average equity excluding non-controlling interests.Return on Invested Capital (ROIC) – EBIT plus the standard interest portion corresponding to 33% of net operating leasing costs in relation to average shareholders’ equity, net financial debt and net capitalized leasing costs (×7).Revenue passenger kilometers (RPK) – See RPK.Revenue tonne kilometers (RTK) – See RTK.Block hours – Refers to the time from when the aircraft leaves the departure gate until it arrives at the destination gate.

Market capitalization – Share price multiplied by the number of shares outstanding.CAGR – Compound annual growth rate.CASK – See unit cost.Code share – When one or more air-lines’ flight number is stated in the timetable for a flight, while only one of the airlines operates the flight.EBIT – Operating income.EBIT margin – EBIT divided by revenue.EBITDA – Operating income before tax, net financial items, income from the sale of fixed assets, share of income in affiliated companies, and depreciation and amortization.EBITDA margin – EBITDA divided by revenue.EBITDAR – Operating income before tax, net financial items, income from the sale of fixed assets, share of income in affili-ated companies, depreciation and amor-tization, and leasing costs for aircraft.EBITDAR margin – EBITDAR divided by revenue.EBT – Income before tax.EEA – European Economic Area.Shareholders’ equity per common share – Shareholders’ equity attributable to Parent Company share-holders less preference share capital in relation to the total number of common shares outstanding on the bal-ance-sheet date.

Unit revenue – See PASK.Unit cost, CASK – Total payroll expen-ses, other operating expenses, leasing costs for aircraft and depreciation adjusted for currency and nonrecurring items, less other operating revenue per ASK (scheduled and charter).Financial preparedness – Cash and cash equivalents, excluding receivables from other financial institutions, plus unutilized credit facilities in relation to fixed costs. In this ratio, fixed costs are defined as payroll and other operating expenses, except jet-fuel costs and gov-ernment user fees, as well as leasing costs for aircraft.Financial net debt – Interest-bearing liabilities less interest-bearing assets excluding net pension funds.Finance leases – Based on a leasing contract where the risks and rewards of ownership of the asset essentially remain with the lessee. The asset is reported as a fixed asset in the balance sheet because the lessee has an obliga-tion to purchase the asset at the end of the lease. The commitment to pay future leasing charges is entered as a liability.FTE – Number of employees, full-time equivalents.IATA – International Air Transport Association. A global association of almost 300 airlines.ICAO – International Civil Aviation Orga-nization. The United Nations’ specialized agency for international civil aviation.

Interline revenue – Ticket settlement between airlines.Affiliated company – Company where the SAS Group’s holding amounts to at least 20% and at the most 50%.Adjusted financial net debt/EBITDAR – The sum of average net financial debt and average LTM net capitalized leasing costs in relation to EBITDAR.Adjusted debt/equity ratio – The net of financial net debt plus capitalized leasing costs (×7) in relation to equity.Adjusted equity/assets ratio – The net of equity in relation to total assets plus capitalized leasing costs (x7).Items affecting comparability – Items affecting comparability are identified to facilitate comparison of SAS’ underlying results in different periods. These items consist of impairment, restructuring costs, capital gains/losses, and other items affecting comparability. They arise as a consequence of specific events, and are items that both management and external assessors take note of when analyzing SAS. By reporting earnings excluding nonrecur-ring items, the underlying results are shown, which facilitates comparability between different periods.Load factor – RPK divided by ASK. Describes the capacity utilization of available seats.Equity method – Shares in affiliated companies are taken up at the SAS Group’s share of equity, taking acquired surplus and deficit values into account.Capitalized leasing costs (×7) – The net annual operating lease costs for air-craft multiplied by seven.Cash flow from operating activities per common share – Cash flow from operating activities in relation to the average number of common shares out-standing.Carbon dioxide (CO2) – A colorless gas that is formed in the combustion of all fossil fuels. The airline industry’s CO2 emissions are being reduced based on a changeover to more fuel-efficient aircraft.

LCC – Low Cost Carrier.NPV – Net present value. Used to calculate capitalized future costs of operating leases for aircraft, for example.Available seat kilometers – See ASK.Available tonne kilometers – See ATK.Operating leases – Based on a leasing contract in which the risks and rewards of ownership remain with the lessor and is equivalent to renting. The leasing charges are expensed on a current basis in the statement of income.PASK (unit revenue) – Passenger revenue divided by ASK (scheduled).Preference share capital – Preference share capital, corresponding to the rede mption price for 2,101,552 preference shares at 105% of the sub-scription price of SEK 500, amounting to MSEK 1,103.RASK – Total traffic revenue divided by Total ASK (scheduled + charter).Regularity – The percentage of flights completed in relation to flights scheduled.Earnings per common share (EPS) – Net income for the period attributable to Parent Company shareholders less preference-share dividends in relation to the average number of common shares outstanding.RPK, Revenue passenger kilometers – Number of paying passengers multi-plied by flown distance (km).RTK, Revenue tonne kilometers – The number of tonnes of paid traffic (passen gers, freight and mail) multiplied by the distance this traffic is flown in kilo-meters.Interest-coverage ratio – Operating income plus financial income in relation to financial expenses.Working capital – The total of non- interest-bearing current assets and non-interest-bearing financial fixed assets excluding equity in affiliated companies and other securities hold-ings less non-interest-bearing liabilities.

Sale and leaseback – Sale of an asset (aircraft, building, etc.) that is then leased back.Debt/equity ratio – Financial net debt in relation to equity.Equity/assets ratio – Equity in relation to total assets.Capital employed – Total capital according to the balance sheet less non-interest-bearing liabilities.Total load factor – RTK divided by ATK.WACC – Weighted average cost of capital includes the average cost of liabilities, equity and operating leases for aircraft. The sources of funds are calculated and weighted in accordance with the current market value of equity and liabilities and the capitalized present value of operating lease costs for aircraft.Wet lease agreement – Leasing in of aircraft including crew.Yield – Passenger revenue divided by RPK (scheduled).

FINANCIAL DEFINITIONS SAS uses various key figures, including alternative performance measures (APMs), for internal analysis purposes and for external communication of the operations’ results, performance and financial position. The key figures support stakeholders in their assessment of SAS’ earnings and performance. The aim of these APMs is to illustrate the performance measures tailored to operations that, in addition to the other key figures, enable various stakeholders to more accurately assess and value SAS’ historical, current and future performance and position.


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Definitions

SUSTAINABILITY DEFINITIONS

Average number of employees – is defined as the average number of employees expressed in full-time equivalents, excluding leave of absence, parental leave and long-term sick leave. This definition is also used in financial reporting. Sometimes the term FTE (Full Time Equivalent) is used.

Biofuels – are solid or liquid fuels of biological origin. Liquid fuels for vehicle/ship/aircraft engines. They are considered carbon neutral to various degrees. The EU renewables directive (2009/28/EC) and biofuels directive (2003/30/EC) define the EU’s mandates on biofuels and degree of carbon neutrality.

Carbon dioxide (CO2) – is a colorless gas that is formed in the combustion of all fossil fuels.

Cargo tonne kilometer – includes all freight and mail (in metric tonnes) multiplied by the great circle distance flown for all flights performed.

CDP – is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. Read more at http://www.cdp.net.

CFCs – are a group of chlorofluoro-carbons that may also contain hydrogen and/or bromide. A class of stable chemical compounds mostly known under the trade names Freon or Halon. Their manufacture is prohibited by the Montreal Protocol because of their depletion of the ozone layer. Aviation has an exception for use under a critical use clause due to the lack of approved alternatives. Research for alternatives is ongoing.

Charges for infrastructure – imposed by the operators of the infrastructure and which are intended to cover operating and capital costs for airlines and air traffic management.

CO2 – Carbon dioxide (see definition).

CO2 passenger or cargo share – is the amount of CO2 emissions from passenger or cargo transport.

Code of Conduct – is the ethics rules and guidelines of a particular business.

CSR – Corporate Social Repsonsibility.

dB – Decibel, a logarithmic unit of measurement that expresses the magnitude of a physical quantity relative to a specified or implied reference level.

Environmental related charges – are charges imposed by the airport operators to motivate aircraft operators to operate aircraft with high eco- efficiency with respect to noise and other emissions such as NOx, as well as surcharges imposed by airport operators to motivate aircraft operators to avoid take-offs and landings at night.

Environmental related investments – Investments in assets to prevent, reduce or restore environmental damage arising from operations and/or aimed at meeting upcoming, more stringent environmental requirements.

Environmentally related taxes – Taxes that, in contrast to other corporate taxation, are motivated by environmental grounds. Examples are the environmentally motivated passenger charge in the UK and the environmentally related fiscal CO2 charges in Sweden and Norway.

External environmental related costs – are the sum of environmental charges and environmentally related charges and taxes.

Fossil fuels – are fuels consisting of organic carbon and hydrogen com-pounds in sediment or underground deposits – especially coal, oil and natural gas.

Global Compact – is a challenge from the former UN Secretary General Kofi Annan to business and industry to live up to ten principles of human rights, employee rights, the environment and anti-corruption, as formulated by the UN. www.unglobalcompact.org

GRI – Global Reporting Initiative is an organization that provides companies and organizations with a global sustain ability reporting framework and thereby allows comparisons between companies from a social, environmental and economic perspec-tive. www.globalreporting.org

Greenhouse effect – Carbon dioxide and other gases trap and reradiate incoming solar radiation that would otherwise be reflected back into space. Most scientists agree that human use of fossil fuels is causing global warming. Other gases that contribute to the greenhouse effect are CFCs (see definition), methane and nitrous oxide.

Halons – See CFCs.

IATA – The International Air Transport Association represents, leads and serves the airline industry. Its mem-bers comprise all major passenger and cargo airlines. www.iata.org

ISO 14001 – is a series of inter-national environmental standards developed by the International Organization for Standardization. The general guiding principles for ISO 14001 are identical to those in the quality standard ISO 9000.

Jet A-1 – is the common jet fuel specification outside North America. Jet A and Jet A-1 are very similar and throughout this Sustainability Report the term ‘jet fuel’ is used to describe fuel used by the aviation industry.

MRV – Monitoring, Reporting and Verification of CO2 emissions and production in tonne-kilometers in the EU Emissions Trading Scheme.

Nitrogen oxides – (NOx) Formed during combustion in jet engines. The high temperature and pressure in air-craft engines cause the atmospheric nitrogen and oxygen to react with each other. This mainly occurs during take-off and ascent when the engine temperature is at a maximum.

Noise – includes environmentally detrimental, undesirable sounds. The environmental impact of air traffic in the form of noise is primarily a local issue. Noise is normally described and measured in dB(A), an A-weighted sound level.

NOx – Nitrogen oxides (see definition).

Occupational accident – is the number of injuries employees incur by accident due to a sudden, unforeseen and external incident, resulting in at least one day of absence.

PK – (used in the sustainability- related reporting) – Passenger Kilometers, includes all passengers (100 kg per passenger including luggage) excluding active crew multi-plied by the great circle distance flown for all flights performed.

SAF – Sustainable Aviation Fuel is a term for fuel made for aviation, that is produced in a sustainable way and with sustainable raw material, aimed to reduce the greenhouse gas emissions. It includes biofuel, but is not limited to biofuel.

SAFUG – Sustainable Aviation Fuel Users Group. Aviation industry organ-ization focused on accelerating the development and commercialization of sustainable aviation fuels.

Tonne kilometers – are the number of transported metric tonnes of passengers and cargo multiplied by the distance flown.

Weighted noise contour – is calculated based on the number of takeoffs per day at a given airport, with regard to the aircraft types the airline uses at that airport. The weighted noise contour defines the area in km2 that is subjected to a noise footprint of 85 dB(A) or more in connection with take-off.


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ANNUAL GENERAL SHARE-HOLDERS’ MEETING 2020

ATTENDING THE AGMThe AGM of SAS will be held on 12 March 2020 at 2:00 p.m. in Solna: The head office of SAS, Frösundaviks allé 1.

Shareholders who wish to attend the AGM must notify the company in advance. Details of the registration procedure are published in the notice calling the AGM.

SENDING OF THE NOTICE AND NOTIFICATION OF ATTENDANCE• The notice is scheduled to be published on

6 February 2020.• Deadline for notification of attendance: 5 March 2020

in Denmark and Norway and 6 March 2020 in Sweden.

FINANCIAL CALENDAR

Monthly traffic data is generally issued on the fifth working day of every month. The detailed financial calendar is available at www.sasgroup.net under Investor Relations.

26 February 2020 Q1 Interim Report (Nov 2019–Jan 2020)12 March 2020 Annual General Shareholders’ Meeting28 May 2020 Q2 Interim Report (Feb 2020–Apr 2020)25 August 2020 Q3 Interim Report (May 2020–Jul 2020)3 December 2020 Year-end report (Nov 2019–Oct 2020)January/February 2021 SAS Annual and Sustainability Report, fiscal

year 2020

For more information, please refer to www.sasgroup.net.

ANNUAL REPORTSAS’ annual reports and other financial information are available in English and Swedish and can be down-loaded at www.sasgroup.net.

Every care has been taken in the translation of this annual report to English. However, in the event of discrepancies, the Swedish original will supersede the English translation.

Production: SAS and Narva. Design: Narva in collaboration with Bold. Photography: Airbus, Bildinstitutet, Carl Hjelte, Daniel Ohlsson, Ernst Tobisch, Folio Images, Getty Images, Johnér, Karl Nordlund, Magnus Lanje, Maskot Bildbyrå, Shutterstock and Söderberg Agentur.

INVESTOR RELATIONS

SAS Investor Relations is responsible for providing relevant information to and being available for dialogue with shareholders, analysts and the media. Over the year, SAS has completed a number of international roadshows and participated in several capital market activities. The company also holds regular analyst meetings.

Analysts who monitor SASDNB Ole Martin WestgaardHSBC Andrew Lobbenberg and Achal KumarNordea Hans-Erik JacobsenPareto Securities Kenneth SivertsenSparebank 1 Markets Lars-Daniel WestbySydbank Jacob Pedersen

IR contactMichel Fischier, Vice President Investor RelationsTel: +46 70 997 0673 E-post: [email protected]


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Luxembourg

Kiev

Rhodes

Kalmar

Kirkenes

Bardufoss

Alta

Lakselv

Visby

SälenTrysil

Valencia

FlorensZadar

Pisa

Bari

Catania

Tivat

Malaga

Faro Alicante

Palma de Mallorca

Barcelona

Olbia

Palermo

NiceMontpellier

BiarritzPulaBologna

Split

Dubrovnik Pristina

Thessaloniki

Chania

Santorini

Alanya

Tokyo

Shanghai

Vilnius

Poznan

Berlin

Wroclaw

Stuttgart

Frankfurt

Paris

Düsseldorf

Bremen

Hamburg

Amsterdam

Malmö

Gdansk

Ronneby

St. Petersburg

Kiruna

Luleå

Skellefteå

Umeå

Sundsvall

Trondheim

Östersund

Bodø

Narvik/Evenes

Bergen

Haugesund

Stavanger

Helsingborg/Ängelholm

Billund

Birmingham

London

Manchester

Aberdeen

Edinburgh

Dublin

Chicago

New YorkWashington D.C.San Francisco

Reykjavik

Longyearbyen

Malta

KristiansundMolde

Ålesund

Zürich

Riga

Los Angeles Miami

Tallinn

Krakow

Beijing

Gothenburg

Hanover

Aalborg

Aarhus

Bucharest

Munich

Helsinki

Prague

Geneva

Warsaw

Turku

Tampere

Vaasa

Brussels

Rome

Milan

Athens

Venice

Stockholm

Copenhagen

Oslo

Naples

Hong Kong

Boston

Faroe Islands

Kristiansand

Lisbon

MadeiraBeirut

Genova

Gazipasa

Palanga

Newquay

Szczecin

Sevilla

Gran Canaria

SAS DESTINATIONS Bases Destinations


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